Euro Fears Cut, CAD Leads

Comments from the Bundesbank leader continue to point to a greater threat of ECB action in June. The Canadian dollar was the top performer Thursday while the yen lagged. The calendar is light in Asia. 1 of 2 USDCHF trades are in progress and both EURAUD shorts  have also been filled and in progress. Other trades in progress include GBPPUSD, EURJPY, USDCAD, NZDJPY, NZDUSD and gold.

The euro closed at a three-month low on Thursday as the reality of rate cuts and the potential for negative deposit rates set in. Bundesbank President Weidmann said the ECB is willing to take additional measures if necessary. Many ECB members have made similar statement but the Germany policymakers are the most hawkish it marks a departure from comments quoted earlier this week when Weidmann said “it's not clear if we even need to act.”

Technically, traders are fixated on Wednesday's spike low of 1.3635 and the 200-day moving average just a pip higher. Reading some commentary from the former director of general market operations at the ECB, he makes a compelling case that the rates market hasn't priced in negative rates yet and it's not particularly close so there could still be some downside ahead of the June 5 decision.

US economic news focused on the jobless claims report (slightly weak) and existing home sales (slightly strong) but the US dollar largely ignored the headlines and crept higher.

Canadian data was also in focus as retail sales fell 0.1% m/m versus +0.3% expected. What's interesting is that the loonie bottomed and then immediately turned around after the data. There were some positive revisions and it's a stale report (from March) but a currency that can rally on bad news is usually a good one. CAD traders await Friday's CPI figures from Canada, expected to rise from the prior month.

The opposite is the Australian dollar as it completely gave back the gains from the upbeat China PMI and finished near the lows of the day.

Asia-Pacific traders wind down the week with a quiet calendar but traders will be keeping a close eye on the Nikkei after Thursday's 2.1% rally. The chart is showing signs of a bottom around 14000 and we've noticed several analyst reports saying Japan's stocks are among the most undervalued. A rising Nikkei and USD/JPY have a fairly tight correlation.