The trade in USDCAD was stopped out as the CAD moved higher. I was quite surprised by this and the move lower doesn’t look particularly convincing but I can’t really justify any further attempts given the break of support. I still the like the USD and CAD continues to look like one of the weaker currencies but I am clearly wrong here.
Before moving on it is also worthwhile mentioning the EURCAD. I closed this yesterday (or the day before) and this was a fortunate move as this has dropped much faster and is now coming to interesting levels.
My inclination would probably be to buy these levels but I think sentiment around the EUR has changed. The EURAUD easily busted through a really solid support level that had held since December last year and the move up yesterday in the EURUSD was extremely unconvincing. The EURGBP is approaching support and if I was to pick any currency to buy the EUR against it would be this one. I am going to continue watching this today to see what happens.
I am not actually sure that we do see further monetary policy action from the ECB. If the BOJ was to act then we might but I think the recovery will continue to grind on at an unremarkable pace. The market is clearly moving in another direction though. When this happens it is usually best to shelve the fundamental view for a while and just keep watching. At the very least though, my view is that EUR won’t do anything substantial to the downside (although maybe it will against the AUD).
The AUD was up strongly overnight on comments from the RBA Governor Glenn Stevens. The speech was broadly positive on the outlook for the economy noting that the economy was making a good transition away from the resource sector whilst warning against housing bubbles. No comments were really directed specifically at the exchange rate, he has previously made comments supporting a lower dollar, perhaps due to the effect that exchange rate was having on inflation through higher import prices.
The market is clearly bullish on the AUD, I continue to be sceptical. The RBA Financial Stability Review clearly notes the presence of exuberance in the housing sector, the high exchange rate hampers competitiveness of Australian products, and the transition away from the resource sector is sure to be bumpy and is at a very early stage. Part of this rebalancing away from the resource sector will naturally be a lower AUD.
The market continues to have a different view though and I am not going to fight the market. Strength against the USD and CAD has been impressive. Whilst I don’t think the outlook is particularly favourable for the AUD, there isn’t much for the bears to grab onto either. In the absence of any countervailing forces, the AUD is quite clearly going to keep going up. I was probably too slow to recognize this, especially against the CAD. I am going to start looking at ways to play this trend. EURAUD and AUDCAD were two good options but I have missed the boat both times. Again, this is something that I will be watching.
The big news upcoming today is US Durable Goods, this might provide some direction for the USD. We are already short the GBPUSD so we have exposure. The USDCAD is probably a better option but I have missed two entries already so I am not going to keep firing.
