Canadian Dollar Breaks December Low, British Pound Pares Overnight Advance

The Canadian dollar extended the rally from the overnight trade and is the best-performing currency against the greenback on Monday, and the exchange rate may continue to trend lower throughout the week as market participants raise their appetite for risk. The dollar-loonie broke below the December low (1.0365) and slipped to 1.0352 after moving nearly 172% of its average true range, and the down leg certain looks to be overdone as the 30-minute RSI falls back towards oversold territory. As a result, we may see the USD/CAD push higher going into the Asian session and may cover the gap from the 240-SMA at 1.0470 however, the rise in risk appetite may continue to weigh on the greenback as it remains the most popular funding-currency next to the Japanese Yen. As the economic docket remains fairly light for the next 24 hours of trading, risk trends are expected to dictate price action for the dollar-loonie, and the Canadian dollar may continue to appreciate as investors move into higher-yielding currencies.

The British Pound rose to a high of 1.6241 during the overnight session as the economic docket reinforced an improved outlook for the region, and the currency could face increased volatility throughout the week as the Bank of England is scheduled to hold its policy meeting on Thursday at 12:00 GMT. The GBP/USD is currently 50+pips lower on the day after moving 120% of its daily ATR, with exchange rate crossing back below the 120-SMA at 1.6142, and the pair looks poised to fill-in the gap from the 240-SMA at 1.6055. However, the broad-based weakness in the greenback may keep the pair bid going into the Asian trade, and we may see the pound-dollar test the 200-Day SMA at 1.6084 for short-term support. Nevertheless, as the BoE is widely anticipated to hold the benchmark interest rate at 0.50% and maintain its GBP 200B asset purchase program in order to encourage a sustainable recovery, comments following the rate decision could produce volatility in the British Pound cross rates as investors weigh the outlook for future policy.

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com