CANADA: JPM USDCAD Scenarios Under Tariffs
Jan-17 12:39
JPMorgan look at USDCAD in different tariff scenarios considering there has been limited reported progress on Canada defusing the risk of 25% tariffs from the US.
- USDCAD breaches 1.50 on initial delivery of 25% tariffs. “Temporary tariffs and/or carve-outs (e.g., energy) could temper immediate impact all else equal, alongside short-CAD positioning.”
- “1.55-1.58 is consistent with full pass-through from our USD tariffs beta [with permanent tariffs and no carve-outs]. Higher recession risks and an aggressive BoC response add to downside risks to CAD.”
- “But those elevated USD/CAD targets could prove temporary. Negative spillover back to the US that drags on US growth and/or yields could impact the USD leg, providing some eventual offset to higher USD/CAD estimates.”
- “USD/CAD sub-1.40 is possible if no tariffs are ultimately introduced, risk premium is depriced, CAD shorts are trimmed, and less trade uncertainty allows other improving domestic factors to boost CAD.”
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ECB: Weekly ECB Speak Wrap (Dec 13 – Dec 18)
Dec-18 12:38
Policymakers have been out in force following the ECB’s December meeting, where the bank cut rates by 25bps and dropped its pledge to keep policy “sufficiently restrictive” until inflation reached 2%.
- Although the changes to the policy statement and the December projections signalled the ECB’s intent to ease policy further, the market reaction was relatively hawkish.
- This seemingly reflected the lack of appetite for a 50bp cut amongst the Governing Council in December, and communique from President Lagarde that suggested a “gradual”, 25bp cutting pace remains appropriate.
- As the new year approaches, the key question for markets is how low the ECB can go, and how quickly will it get there.
- In the following publication, we provide a summary of ECB-speak from December 13 to December 18: 241218 - Weekly ECB Speak Wrap.pdf
OUTLOOK: Price Signal Summary - Impulsive Bear Wave In Gilts Extends
Dec-18 12:28
- In the FI space, the current bearish cycle in Bund futures remains in play and the contract continues to trade closer to its recent lows. Sights are on 133.98, 61.8% retracement of the Nov 6 - Dec 2 bull cycle. Clearance of this level would strengthen the current downleg. For bulls, a reversal higher would highlight the end of the correction. First key resistance to watch is 136.01, the Dec 12 high. A move above this level would expose 137.18, the Dec 2 high.
- A strong bearish theme in Gilt futures remains in play and this week’s extension reinforces current conditions. The move down has resulted in a breach of key short-term support at 93.40, the Nov 18 low. The break of this level highlights a stronger reversal. Sights are on 72.63, 3.382 projection of the Dec 3 - 4 - 5 minor price swing. Initial resistance is at 93.64, the Dec 16 high and a gap low on the daily chart.
USD: USDJPY edges to session high
Dec-18 12:17
- USDJPY is edging towards the intraday high, the move is small and gradual, and taking its cue from the selling interest going through In Bonds.
- US Tnotes hovers at session low, as Desks await the FOMC later and look for less cuts in 2025 as Trump takes over.
- Resistance in the USDJPY is further out, past the 154.00 figure, at 154.48 High Dec 16.
