US Dollar Price Action Setup: EUR / USD, GBP / USD, USD / CAD
Analysis and news USD, EUR, GBP, CAD
- USD remains out of favor on corporate risk appetite
- Euro faces hurdle at old current year low (1.1664)
- Changes in BoE tightening bets continue to dictate pound sterling, eyes on Tenreyro
- CAD awaits BoC meeting
USD: The question for the USD is whether there is more to be done in the USD’s long squeeze. To my surprise, the USD failed to hold onto gains stemming from President Powell’s heightened concerns about rising inflation. However, a hold above the support at 93.40-50 is encouraging for USD buyers. However, with equities remaining stable, safe havens such as the USD remain out of favor.
EUR: The key area for the Euro is the former YTD low at 1.1664, which has repeatedly held back the currency’s strength. Therefore, if we were to look for another higher leg of the Euro, this area of resistance should be eliminated. A reminder this week that we will be attending the last ECB meeting and in light of the aggressive interest rate revaluation, the ECB is expected to push money market prices back when the ECB tightens next year. .
EUR / USD Chart: Daily Period
GBP: Changes in money market prices continue to dictate the pound’s price action, alongside the recent rise in political tensions between the UK and the EU over the Northern Ireland Protocol, also add an element of uncertainty. Late in Friday’s session, reports indicated that the EU would consider terminating the Brexit trade deal if disagreements with the UK escalated. However, while this has triggered slight pressure on the pound sterling, reports over the weekend that the first round of new negotiations have been constructive have somewhat assuaged concerns about rising political tensions for the time being. On the technology front, short term resistance stands at 1.3800 with 1.3830 above.
Today we will see comments from the typically conciliatory Tenreyro (1400 BST) and keep in mind that the rate regulator recently said that a rate hike in the face of supply side disruptions would be. doomed to fail. However, if Tenreyro were to signal greater openness to a tighter policy in the form of rate hikes, it would likely support the pound.
GOUJAT: The main focus this week for the loonie will be on the Bank of Canada’s next rate decision. Canada’s current economic outlook is encouraging, with the labor market remaining robust after rebounding to pre-Covid levels. Meanwhile, the measures of average core inflation reviewed by the Bank have continued to exceed their target and, with the upward trend in oil prices, this suggests that the price revision of tightening bets in the BdC is more than appropriate. A reminder that the current BoC forecast suggests that the output gap should be closed by the second half of 2022, however, it is likely to be revised in the first half of 2022 and therefore signal an earlier rate take-off . That said, with a 35bp tightening expected by April, there is room for disappointment and therefore the loonie risks a pullback.