ECB Talk Moves the Needle

A hint about less ECB bond buying gave the euro a quick lift on Tuesday. GBP led the way after a strong services PMI while the Japanese yen lagged. Australian GDP is due up next.  Our USDCAD short was stopped out at 1.3060 before the market peaked at 1.3070 and dropped nearly 100 pips. The other CAD trade is open and approaching the green.

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It was a back-and-forth day throughout FX on Tuesday as the dollar climbed early on the heels of the service sector data. The ISM non-manufacturing index rose to 58.6 compared to 57.6 expected with rises in prices paid as well. Similarly-strong data came from the Markit service sector PMI. The combo pushed EUR/USD as low as 1.1653 and drove the dollar to the best levels of the day.

But the tone changed in the subsequent hours in part because of a rally in the euro that was sparked by an ECB sources story that said officials will discuss signaling an end to QE at the June 14 meeting. That lifted EUR/USD to 1.1730 in a quick move.

Cable is also showing signs of life after the services PMI climbed to 54.0 compared to 53.0 and sparked a glimmer of hope that the UK economy is turning the corner. The initial gains came early in European trading but after a hiccup on USD strength, the pair rose above 1.34 to a 10-day high.

USD/CAD also went on a wild ride as talk of splitting NAFTA into bilateral deals sent it higher, along with an early drop in oil because of reports that the US had asked OPEC to increase production. USD/CAD rose as high as 1.3067 – a two month high – before falling back to 1.2969.

Looking ahead, yesterday's RBA decision had a slight dovish tinge to it and that weighed on the Australian dollar. Perhaps the RBA had a sneak preview of GDP numbers due at 0130 GMT. The consensus is +0.9% q/q in a pickup from +0.4% in Q4. That would be the fastest growth since Q3 2016.