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Strong Canadian permits ahead of Friday's employment numbers

Posted on: July 06, 2017

Despite watching crude take it on the chin, CAD selling was relatively muted yesterday, with USDCAD squeezing higher through 1.3000 before retreating. The catalyst for the oil move was comments from Russian officials stating that additional cuts would send the wrong message to the market. WTI was content to run stops all day, squeezing down to 44.50 ahead of API numbers before a strong API report saw crude recover and CAD strengthen.

On the data front, the Canadian trade deficit and the US trade deficit both came in wider than expected this morning. In the US, ADP numbers underwhelmed, we will see if that is confirmed tomorrow in the Non-Farms number. Canadian permits blew it out of the water, coming in significantly better than expectations (8.9% versus 1.0% expected).

Yesterday the FOMC released its minutes, and while there was little contained that was not already known to the market such as sluggish economic growth and a large Fed Balance sheet, questions on financial instability seems to be at the forefront. In the notes, it was outlined that increased risk tolerance among investors may be contributing to elevated asset prices (US equity valuations). Moreover, subdued market volatility (record low VIX) coupled with a low equity premium, could indeed lead to an unnecessary buildup of risks pertaining to financial instability. The ECB also released minutes this morning, and EURUSD (1.3960) strengthened on the interpretation of a mildly hawkish ECB. However, the bank noted that it was concerned that communication on economic outlooks may be misinterpreted by the market. This comes after the market perceived Draghi’s comments as overly bullish, and sent EURUSD to a one year high of 1.1445.

  • Yesterdays NA 1.2951 – 1.3015
  • Asia 1.2956 – 1.2983
  • London 1.2926 – 1.2971

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