Ahead of the European Central Bank (ECB) meeting and outcome of the Greek private sector involvement (PSI) debt swap it is very difficult to see the EUR moving out of ranges. I expect no surprises from the ECB and therefore little FX impact. Downward revisions to ECB growth forecasts will however, underpin the more negative tone to the EUR exhibited over recent days.
The bigger risk is the outcome of the PSI. Reports that Greece is nearing the minimum level of PSI participation of 66% will help erase market concerns of a complete collapse of the debt deal, but the risk of forcing a collection action clause and triggering credit default swaps (CDS) remains very much alive. EUR/USD is unlikely to recoup much of its recent losses against this background but will also not sustain any drop below technical support around 1.3055.
The CAD has pivoted around the parity level with the USD over recent weeks, showing little inclination to undertake a significant move in either direction. Notably USD/CAD has failed to sustain gains above its 200-day moving average level around 0.9997. Nonetheless, the CAD has held up relatively well compared to its commodity currency peers, specifically the AUD and NZD, which have both fallen over recent days.
The breakdown in correlation highlights the fact that CAD is regaining some of its old allure as a ‘turbo dollar’. My quantitative estimates show that USD/CAD has some further downward potential but I prefer to play potential CAD upside versus the AUD. The Bank of Canada (BoC) meeting today will do little to derail the CAD, with an unchanged policy decision in prospect, leaving the CAD to maintain gains against AUD.