EUR Eyes Italian Sovereign Rating, CAD Slides on NAFTA Trade Deal Doubts - US Market Open

2018-08-31 13:35:00

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MARKET DEVELOPMENT – CAD SLIDES AMID REPORTS THAT US/CANADA MAY MISS NAFTA DEADLINE

USD: Risk off environment stemming from trade war jitters has helped support the greenback. President Trump rejected talk from the EU of scrapping industrial good tariffs, while also stating that the US are preparing to implement $200bln worth of tariffs as soon as next week. Alongside this, today’s Fed balance sheet unwind has also buoyed the greenback, which has led to a $11.4bln negative impact on USD liquidity. The gains are despite various investment bank month-end FX rebalancing models signalling strong USD selling.

CAD: Reports that the US and Canada may fail to reach an NAFTA agreement by the deadline has seen the Canadian Dollar slide against its major counterparts. Headline risk continues to remain elevated for the Loonie and will likely dictate price action in the near term. USDCAD firmly above 1.30 to hover around 1.3050, eyes on the bearish channel top at around 1.3080.

EUR: Much like the German inflation, Eurozone figures eased slightly with the headline figure around 2%, while the core inflation continues to remain benign at 1%, which is still some way off the ECB’s target. Elsewhere focus will be on Italy’s sovereign rating review by Fitch after market, in which a downgrade could see the Euro come under more pressure.

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IG Client Sentiment Index: USDCAD Chart of the Day

USDCAD: Retail trader data shows 44.8% of traders are net-long with the ratio of traders short to long at 1.23 to 1. The number of traders net-long is 15.7% lower than yesterday and 11.7% lower from last week, while the number of traders net-short is 0.3% lower than yesterday and 9.4% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bullish contrarian trading bias.

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