A trio of pairs are waiting near key levels in anticipation of big news this week. The yen was the top performer Monday while the euro lagged. In mid-day EU trading, the euro is the best performer and the NZD at the opposite end. We trun to today’s PMI figures from the US after a series of neutral to better than expected PMI reports from the Eurozone. A Premium trade that has long been awaited was finally opened yesterday, bringing the number of open trades to 6.
The election excitement in USD/JPY faded Monday and the opening gap closed. The pair touched as high as 114.10 but sagged back to 113.43 late in the day as risk aversion picked up. The reversal highlights resistance near 114.50. In the bigger picture it highlights a market that’s waiting for clarity on the Fed choice before making a move. For confirmation, watch 2.40% in 10-year yields, which is a level we are hearing about frequently.
Elsewhere, it’s a similar story. The euro remains stuck in the 1.17 to 1.19 range as the hours tick towards Thursday’s ECB decision. As we highlighted earlier, the market is holding a large net-long euro position that’s vulnerable to a dovish surprise. Expectations for ECB tapering range from € 20 bn to € 40 bn, with an extension in the program ranging from 6 to 12 months.
A position that’s most uneasy may be CAD because of Poloz’s recent unpredictability. USD/CAD touched 1.2660 Monday but couldn’t break the Aug 31 high or the 100-day moving average. The market is divided on whether or not the Bank of Canada will hike again this year and the pair could easily swing 5 cents in either direction once there is more clarity. Wednesday’s outlook announcement from the BoC will be key.
Expect the market to tip-toe until some of those questions are answered.
