FX Update: Low ceiling for Bank of Canada surprises.

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Today's Market Quick Take from the Saxo Strategy Team

FX Trading focus: Half-hearted USD rally extension, BoJ member weighs in against tightening, Bank of Canada on tap.

The USD stayed bid yesterday on weak risk sentiment, but with the rally extension feeling a big half-hearted and unwinding a bit in today’s trade. Overnight, one of the bigger movers was USDJPY, which challenged above the important 137.50 area (prior range low) this morning after BoJ board member Toyoaki Nakamura supported the BoJ’s current easy policy, noting that the elevated inflation in Japan in the recent cycle is not wage-driven. Nakamura expressed concern that policy tightening might prompt the return of deflation. It’s worth noting that, while USDJPY needs probably at least 139.00 to suggest a reversal of the most recent sell-off leg, other JPY pairs like EURJPY are in full reversal mode as of this writing, with that pair pulling well back into the former range and above 144 today.

Elsewhere, USDCAD is making a bid at establishing a new up-trend, AUDUSD has posted a bearish reversal, and EURUSD & GBPUSD still need more downside to suggest a similar reversal, while all USD traders are holding their collective breath for next Tuesday’s US November CPI print and the FOMC meeting the following day.

The victory of Democrat Raphael Warnock in the Georgia Senate run-off race increases the ability of the Democrats to continue with appointments and move forward with the general business of governing, but doesn’t matter much as the GOP has a narrow majority in the House for the next two years.

Watch out for the UK November RICS House Price Balance survey up tonight, the survey has suffered a record-setting pace of declines, from 51% August to -2% in October. The survey is the percent of polled property surveyors seeing rising versus falling house prices.

Chart: USDCAD
USDCAD has lurched into a fresh upside breakout attempt, driven far more by CAD weakness than USD strength as M&A sparked some of the former (HSBC divesting its Canadian operations), but with a huge pile-on of pressure on the loonie this week on the steep retrenchment in risk sentiment this week, together with a massive downdraft in crude oil prices. As noted below, the market is divided on whether the BoC goes with a 25-bp or 50-bp move today, but guidance is far more important as we watch how firmly Governor Macklem signal the imminent end for at least this part of the tightening cycle. The move looks technically strong here, but it would be helpful to see the greenback doing more of the heavy lifting. A close above 1.37-38 could suggest an attack on the nearly 20-year highs above 1.4600, but likely only if the greenback finds new rally legs heading into 2023.