Updated July 3, 2009

Good morning.

Following on from yesterday risk reduction trade on the back of worse than expected US employment data, the market is likely going to trade the “green shoots” with a lot more caution and suspicion. he USD index is marginally better bid although the day’s range has been very small while the USD itself is generally mixed lagging the Kiwi, Aussie and Loonie and outperforming the Pound, Norway, Swedish and Euro in lighter than usual volumes. Data wise it has also been quiet with the UK getting a marginally better than expected service PMI reading of 51.6, although the number registered a slight decline from the previous month. The Euro zone got what can be considered mixed results for the June service PMI numbers, with the numbers for Germany, France and the Euro zone itself also being slightly better than expected although all remained below the all important 50 threshold. In addition the Euro zone reported a larger than expected decline in retail sales for both the monthly and yearly readings.

Turning to North America, with the US closed for the Independence Day holiday and no data releases north of the border, volumes are likely to get even thinner. As for the C$, USDCAD is marginally lower although the pair is still well contained within recent ranges. We noted that USDCAD on Wednesday formed an outside reversal, suggesting that another move lower in USDCAD was pending. That was offset yesterday by the worse than expected US employment data, although the pair remain inside the day’s previous range, suggesting that the “integrity” of the reversal was still intact. The momentum indicators on the daily charts still suggest that the risk remained skewed to the downside with the MACD still pushing lower as are the stochastics however the RSI has moved back from overbought territory suggesting that although the risk are skewed lower, sideways price action is also a risk. In order to confirm the move lower and signal a deeper extension USDCAD really needs to take out the 50 day MA which comes in this morning at 1.1454. Other than that, the pair could be confined within the recent 1.1450 and 1.1650 range. The shorter term intraday charts are also moving sideways, but also look to be suggesting that USDCAD drifts lower. As for the CAD crosses, most of them remain well contained within recent ranges and although the price action looks to be sideways, the risk remains for the CAD to outperform, particularly against the Euro and Aussie.

Expected range: 1.1525 – 1.1625
Jon Gencher

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