An ECB rate cut may not be enough for the Euro to weaken

The USD edged higher yesterday yet lost any gains made in today’s Asian session. The markets seem to have shifted their attention towards the expected negotiations between China and the US later this week. US President Trump and Chinese President Xi Jinping are to have a phone call and hopes are rising that the two leaders could iron out any trade tensions, which have recently emerged. We tend to nurture little hope for the outcome at the current stage and should the negotiations fail to produce a positive result we may see the issue weighing on the USD.

It should be noted that US President Trump’s new steel and aluminium tariffs kicked in yesterday, with the US neighbours, Mexico and Canada being hit particularly hard. The Canadians seem to be preparing reprisals and it’s characteristic that Canada’s PM Carney stated that “We are in intensive negotiations with the Americans, and, in parallel, preparing reprisals if those negotiations do not succeed,“. Currently, Canada is ravished by wildfires, while Loonie traders are expected to keep a close eye on the release of April’s trade data and BoC Deputy Governor Kozicki’s speech later on. A widening of Canada’s March trade deficit beyond market expectations and a possibly dovish tone by Kozicki could weigh on the CAD.

USD/CAD continued to weaken yesterday, aiming for the 1.3645 (S1) support line. We intend to maintain our bearish outlook for the pair as long as the downward trendline incepted since the 15th of May remains intact. Please note though that the RSI indicator is nearing the reading of 30, underscoring the strong bearish sentiment of the market for the pair, yet at the same time , may imply that USD/CAD is nearing oversold levels. Should the bears remain in charge as expected, we may see USD/CAD breaking the 1.3645 (S1) support line and start actively aiming for the 1.3420 (S2) support level. Should the bulls take over, we may see the pair bouncing on the 1.3645 (S1) support line breaking the prementioned downward trendline and continue to break the 1.3815 (R1) resistance line, paving the way for the 1.3975 (R2) resistance barrier.

Across the pond, EUR traders focus on the ECB’s interest rate decision. The bank is widely expected to cut rates by 25 basis points, yet a mere rate cut may not be enough for the common currency to weaken. Currently, the market is also pricing in at least one more rate cut in the September meeting implying a dovish inclination of the market. Hence, market attention may be placed on the bank’s forward guidance which is to be included in the bank’s accompanying statement and ECB President Lagarde’s press conference. Should the bank fail to signal that more rate cuts are in the pipeline and in general sound not dovish enough we may see the EUR gaining some support as the market may be forced to reposition itself and adjust its expectations.

EUR/USD edged higher yesterday and seems to be taking another swing at the 1.1450 (R1) resistance level. We maintain our bullish outlook for the pair as long as the upward trendline guiding the pair since the 13th of May maintains its dominance over the pair’s direction. Should the bulls continue to lead the pair, we may see EUR/USD breaking the 1.1450 (R1) resistance line and start aiming for the 1.1690 (R2) resistance level. Yet we note the difficulty presented by the pair’s price action to actually break clearly the 1.1450 (R1) line and should the bears take over, we may see EUR/USD breaking the prementioned upward trendline and continuing to break the 1.1210 (S1) line and start aiming for the 1.0940 (S2) support base.

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Today we note the release of Germany’s industrial orders rate for April, Sweden’s preliminary CPI rate for May, the UK’s composite PMI figure for May, the Eurozone’s producer prices rate for April and the US weekly initial jobless claims figure. Also, we note the speeches by BoE Greene, Kansas City Fed President Schmid and Philadelphia Fed President Harker.