The weakness in classic havens CHF and JPY is somewhat surprising, despite their relative performance vs. G10 peers. The CAD and NOK are faring better, understandably, given their relationship to oil prices. The geopolitical situation remains worrisome and comments from President Trump have hinted to the possibility of additional airstrikes. Broader markets initially traded risk off but appear to be recovering somewhat, with equity futures retracing about half of their knee jerk decline as we head into Friday’s NA open. Treasury yields, meanwhile, have fully retraced their initial declines and are trading marginally higher vs. Thursday’s closing levels. The surge in oil prices is notable however, and oil prices are holding onto their overnight gains with WTI trading in the mid-$70s, a significant increase from Thursday’s close around $68/bbl and a meaningful departure from recent OPEC oversupply-driven lows just above $55/bbl. Copper is weak, reflecting the broader market’s tone of risk aversion and extending its recent bear reversal while gold has pushed to fresh local highs nearing the upper end of the flat range that has defined its price action since it reached its record high in late April. The focus for Friday’s NA session will remain centered on geopolitical developments and the possibility of escalation. In terms of data, the US will release preliminary UMich consumer sentiment data—a critical release ahead of next week’s FOMC. Policymakers have historically been sensitive to the data, and the figures present an even greater risk following this week’s disinflationary CPI and PPI as well as the worrisome jobless claims data that have revealed a continued deterioration in the US labor market. The Fed remains in its quiet period ahead of next week’s FOMC, however we note the potential for significant headline risk around the G7 leaders’ summit, scheduled for Sunday through Tuesday.
USDCAD (1.3646) The CAD is trading marginally lower vs. the USD while performing well against most of the G10 currencies, its performance insulated by the Canadian dollar’s relationship to oil prices. The CAD/crude correlation is historically positive and oil price gains present a reliable source of support for the Canadian dollar. CAD fundamentals have improved significantly this week, as the notable improvement in the outlook for relative central bank policy has been compounded by meaningful oil price gains. Our FV estimate for USDCAD has fallen to a fresh local low, and is currently at 1.3613, reflecting narrowed US-Canada yield spreads and higher prices for crude. Near-term domestic risk lies with the release of manufacturing sales at 8:30am ET, and Canada will host the G7 leaders in Kananaskis, Alberta from June 15 to 17.
USDCAD short-term technicals: Bearish—technicals remain bearish, and USDCAD briefly pushed below 1.36 before its modest sentiment driven rally. The gains have been minimal however, and we would anticipate near-term resistance closer to 1.3680. We note that the RSI is still quite bearish in the mid-30s, having bounced off of the oversold threshold at 30. We continue to highlight the absence of any meaningful support levels ahead of the September low at 1.3420. Near-term support is expected in the 1.3600/1.3580 area.
EURUSD (1.1498) The EUR is weak, down 0.6% and fully retracing Thursday’s ECB (and US PPI)-driven rally, fading back to the psychologically important 1.15 level. The fundamental outlook for EUR remains supportive, given the shift in the outlook for relative central bank policy as the ECB pivots toward a neutral stance while markets price in greater easing from the Fed. The release of softer trade and industrial production data have compounded Friday’s sentiment-driven decline, however we remain bullish on the basis of medium-term trends and look to further gains through next week’s FOMC.
