USDCAD TECHS: Southbound

Euribor futures are flat to -1.0 ticks through the blues versus yesterday's settlement levels. There hasn't been a tangible reaction to overnight news that the US and China will hold formal trade talks in Switzerland at the weekend, nor the PBOC's latest monetary easing measures.

• ECB-dated OIS continue to price just over 60bps of easing through year-end. A 25bp cut is essentially fully priced through June, and this will likely remain the case unless the ECB see evidence that downside growth risks are smaller than feared.
• German factory orders rose 3.6% M/M (vs 0.0% prior). This was above the 1.3% median estimate, but the skew of forecasts was exceptionally wide. The data wasn’t a market mover.
• Today’s regional data calendar is light (Eurozone March retail sales are due at 1000BST, consensus -0.1% M/M), with primary focus on this evening’s FOMC decision. 

Sell-side reaction to China’s policy easing package points to a measured approach being deployed thus far, with the potential for deeper monetary and fiscal easing in the relative near-term.

• Goldman Sachs: The relatively small policy rate cut (10bp vs. our expectation of 20bp) and policy communication indicate a measured and reactive easing approach. In addition, PBOC's targeted support areas, including services consumption, elderly care and technology and innovation, were mentioned in the April Politburo meeting and not surprising. Fiscal policy easing remains the primary tool to offset the growth drag from US tariffs. The latest headline of "ice-breaker" talks between US and China raise the prospect of a partial rollback of US tariffs on Chinese goods, which in turn could reduce the need for a large fiscal package. We now expect additional two 10bp policy rate cuts in Q3 and Q4, and another 20bp cut for 2026 (vs. a total of 60bp in policy rate cuts previously). We still expect another 50bp RRR cut in Q4, which may facilitate additional fiscal easing funded by more government bond issuance.
• ING: China's policy response after the escalation of the trade war has been quite calm and measured. Beijing has remained confident this year in stabilising growth despite external headwinds. Monetary policy aside, fiscal policy support will also continue to roll out. This year's focus has been on boosting domestic demand. From today's measures, we can see that monetary policy is also playing a role. We expect these efforts will eventually bear fruit, though it will be challenging to restore consumer confidence, which is closer to historic lows than historic averages. Stabilising asset prices and restoring wage growth are important factors in this process.  After today's moves, we still think there’s room for additional policy easing if needed, given deflationary pressures and the risk of moderating growth. We are looking for another 20bp of rate cuts and 50bp of RRR cuts this year, and we expect that the next move might not come until after the US Federal Reserve resumes rate cuts.
• J.P.Morgan: This is similar to the press conference on September 24 2024, which kicked off a major policy shift to help stabilize the economy. The policy playbook is the same, and easing measures are similar. Today’s easing measures are in line with our expectations. We maintain our interpretation of a two-step approach of policy adjustment, with additional fiscal stimulus likely be introduced later this year (around July politburo meeting).

• RES 4: 1.4415 High Apr 1
• RES 3: 1.4296 High Apr 7 
• RES 2: 1.4055 50-day EMA 
• RES 1: 1.3901 20-day EMA  
• PRICE: 1.3788 @ 07:59 BST May 7
• SUP 1: 1.3751 Low May 6 
• SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
• SUP 3: 1.3696 Low Oct 10 2024
• SUP 4: 1.3643 Low Oct 9 ‘24 

Bearish conditions in USDCAD remain intact and the pair is trading at its recent lows. A fresh cycle low last Friday reinforces the bearish theme signalling scope for a continuation, near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Note that Moving average studies are in a bear mode position, highlighting a dominant downtrend. On the upside, first resistance to watch is 1.3901, the 20-day EMA.