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Forex pairs in this Article » EUR/USD
FXStreet (Barcelona) - Stephen Gallo, European Head of Currency Strategy at BMO Capital Markets note that his expected USD/CAD 1.1025-1.1075 range yesterday was breached on the topside for more than one reason, as is generally the case in FX.

Key Quotes

“We suspect that some F&C-related flow was partially to blame: either ‘real’ or ‘speculative’. Additionally, some participants appear to have been forced out of ‘risk off’, with ‘intervention’ having emerged in more than one place: Turkey, Brazil and India.”

“Three central banks acting at roughly the same time is a considerable force. Downside USD/CAD risks have therefore dissipated somewhat over the last 12-24 hours, as nominal long-term US rates and ‘risk appetite’ have become a bit more supportive for the pair. If anything, the improvement in ‘risk appetite’ as some EM currencies have stabilised has been more aggressive than we were expecting.”

“Anything within 1.100-1.125 in USD/CAD should be looked at as ‘fair game’ heading into early February. Opportunities to buy the pair targeting the top-end of that range should look more attractive if Friday’s Canadian data (Nov. GDP) are poor. It must be added, though, that current conditions are quite frustrating.”

“What the past 24 hours has shown us is that EM noise has the potential to shift the balance of risks in USD/CAD in both directions, through potentially ‘lopsided’ flow. We had assumed that consolidation in USD/CAD in some fairly tight ranges should be a key theme for this week.”

“This would at least make sense following last week’s macro tensions. With EM distress in the mix, however, it seems that ‘risk appetite’ is periodically being taken off and put back on again, but with more force than each preceding move. This ‘lopsided’ flow is probably distorting some of the ranges in USD/CAD.”

“We now look for USD/CAD to range between 1.105-1.115 for the time being. However, it bears repeating that the very near-term balance of risks in USD/CAD appears to have shifted away from the downside. With the FOMC still ahead of us on Wednesday, we can pinpoint at least three potential outcomes for the next 48 hours or so of trading in USD/CAD.”
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