• USD/CAD is challenging the 200-day simple moving averages (DSMAs).
  • A break below 1.3250 can potentially lead to further losses.

USD/CAD daily chart

The market is testing 1.3250 and the 200 simple moving averages (DSMAs).

USD/CAD 4-hour chart

USD/CAD is under bearish pressure below its main SMAs.

USD/CAD 30-minute chart

The currency pair is trading in a tight range below its main SMAs suggesting a bearish bias in the short term. A breakdown below 1.3250 can lead the market to 1.3180 and 1.3110 to the downside. Resistance is seen at 1.3280, 1.3310 and the 1.3300 levels.

Additional key levels

  • DXY keeps the tight range well in place around 96.80 on Tuesday.
  • US 10-year yields tested the proximity of 2.18%.
  • US Producer Prices rose 0.1% inter-month in May.

The US Dollar Index (DXY), which tracks the greenback vs. a basket of its main rivals, keep the familiar range unchanged today around the 96.80 region.

US Dollar Index apathetic on data, Trump

The index is extending the rangebound theme prevailing since yesterday in the 96.80 area, in line with the generalized lack of direction in the global markets and a tepid bounce in the risk-on mood.

In addition, Producer Prices failed to ignite any noticeable reaction in the buck. In fact, headline Producer Prices rose 0.1% MoM and 1.8% on a year to May, while Core prices gained 0.2% inter-month and 2.3% on a yearly basis. Earlier in the day, the NFIB index rose to 105.0 in May, surpassing initial estimates.

Further news around the greenback saw President Trump once again tweeting against the current levels of the Fed Funds, deeming them as ‘way too high’.

What to look for around USD

Markets’ idea of a probable rate cut by the Federal Reserve in the near to medium term (insurance cut?) were boosted by the huge miss from the US labour market during May, exacerbating the selling bias in the buck. However, and in spite of the recent results, the labour market remains strong, wage growth keep pushing higher and the overall economy looks healthy – specially when we consider the weakness in overseas economies – all begging the question whether current speculations of rate cuts are not overdone. In addition, US-China trade jitters remain everything but abated so far, shifting the focus of attention to the upcoming G20 meeting in Japan, where the issue should take centre stage.

US Dollar Index relevant levels

At the moment, the pair is gaining 0.01% at 96.78 and faces the next hurdle at 96.98 (100-day SMA) seconded by 97.41 (55-day SMA) and finally 97.87 (61.8% Fibo of the 2017-2018 drop). On the downside, a breakdown of 96.46 (low Jun.7) would open the door for 96.04 (50% Fibo of the 2017-2018 drop) and then 95.82 (low Feb.28).

  • China signals fresh fiscal stimulus for its slowing economy and lends some support.
  • A follow-through rally in the US bond yields underpins the USD and cap any up-move.

The AUD/USD pair lacked any firm directional bias and seesawed between tepid gains/minor losses through the early North-American session.

Having dropped to over one-week lows earlier on Tuesday, the pair now seems to have entered a bearish consolidation phase and was seen oscillating in a narrow trading band around mid-0.6900s.

China's efforts to bolster economic growth – by allowing local governments to use proceeds from special bonds as capital for major investment projects, extended some support to the China-proxy Aussie.

The positive factor, to a larger extent, was offset by a mildly positive tone surrounding the US Dollar, which remained supported by a follow-through recovery in the US Treasury bond yields.

Meanwhile, market participants remained convinced that the Fed will need to cut rates sooner rather than later amid the ongoing US-China trade tensions and a series of weak domestic macro data.

The latest disappointment from the annual US PPI figures further reinforced the market expectations, which kept a lid on any strong follow-through USD uptick and further collaborated to the subdued trading action.

Moving ahead, Wednesday's scheduled speech by RBA Assistant Governor Christopher Kent, followed by the release of Westpac's Aussie Consumer Sentiment Index and Chinese inflation figures will now be looked upon for a fresh impetus.

Technical levels to watch

Mexican President Andres Manuel López Obrador crossed the wires in the last minutes reiterating that they are optimistic they will be able to deal with the immigration issue. "We will continue with the policy of non-confrontation, of pursuing negotiation, and good relations with the U.S.," Obrador added. "We have to strengthen our domestic market, and diversify our relations, but without breaking with the U.S. and Canada."

In view of analysts at TD Securities, energy markets are taking well to the latest increase in risk appetite with CTAs bringing WTI selling to a halt, and are set to cover a large portion of their shorts if today's gain can be held.

Key Quotes

“Comments from Novak yesterday that Russia is worried about oversupply and potentially $40/bbl oil in the second half of the year has further strengthened our view that OPEC+ will agree on an extension to their production cuts. Meanwhile, global supply remains at risks amid the recent restriction of the flow of diluents to Venezuela, along with sky-high risks to Libya's output and boiling tensions in the Gulf, suggesting fundamental support remains.”

“In addition, CTAs continue to hold divergent trades in product markets as they sell gasoline and buy heating oil, which is a trade we like amid the coming IMO regulations which could substantially tighten the distillate market at the expense of gasoline in the later months of the year.”

  • EUR/USD comes under pressure and approaches 1.1300.
  • EMU Sentix index came in below expectations in June.
  • US Producer Prices rose 0.1% MoM in May.

The shared currency is now losing upside momentum and us dragging EUR/USD to the vicinity of the 1.1300 key support.

EUR/USD weaker on data, yields

Spot faded the initial spike to the 1.1330 region and returns to the vicinity of 1.1300 the figure following the wider yield spread between the US and German money markets.

In fact, yields of the US 10-year note have managed to climb to fresh tops in the 2.18% earlier today, widening the differential vs. the German 10-year reference to the boundaries of the key 240 pts.

In the data space, US Producer Prices rose at a monthly 0.1% during May and 1.8% from a year earlier. In addition Core prices gained 0.2% on a monthly basis and rose at an annualized 2.3%, matching estimates. Earlier in the day, the NFIB index came in on the strong side, up to 105.0 for the month of May.

What to look for around EUR

The ECB did not sounded as dovish as expected last Thursday despite revising slightly lower its forecasts for inflation and economic growth in the region for the next years and after members discussed restarting QE or event cutting rates at the meeting. So, rates are expected to remain at current levels at least through H1 2020, although the ECB convincing optimism on an eventual pick up in inflation figures and the economic activity appeared to remove some bearishness surrounding the shared currency for the time being. On the broader picture, the broad-based risk-appetite trends and USD-dynamics should dictate the sentiment surrounding the European currency for the time being, all in combination with developments from the trade front including the US, China, the EU and Mexico. On the political front, Italian politics is expected to remain a source of uncertainty and volatility, with the centre of the debate on the country’s opposition to EU fiscal rules.

EUR/USD levels to watch

At the moment, the pair is gaining 0.07% at 1.1319 and a breakout of 1.1347 (high Jun.7) would target 1.1365 (200-day SMA) en route to 1.1448 (monthly high Mar.20). On the other hand, the next support lines up at 1.1272 (100-day SMA) followed by 1.1216 (55-day SMA) and finally 1.1200 (low Jun.6).