Some Interesting Price Action

Canadian dollar: The US dollar is recording an outside down day against the Canadian dollar--that is it has traded on both sides of yesterday's range and the US dollar looks likely to finish the NY session below yesterday's low ~CAD1.0420. The BOC hiked rates as widely expected and traders searched high and low for all sorts of reasons for its weakness. Today's gains lend credence to our idea that yesterday's disappointing price action had to do more with the general market conditions and the unwinding of risk. The US dollar is breaking below the 20-day moving average, something that has not since May 13th, which was a one day wonder. The dollar has not closed below its 20-day moving average since April 26th. The break below CAD1.04, which is the 50% retracement of the USD rally. The next objective comes in near CAD1.0280. We look for a test on parity again toward the middle of Q3.

Sterling: The collapse of the Pru-AIA deal appears to be an important driver, allowing sterling to outperform in recent sessions. The gains have been sufficient to generate a cross of the 5 and 20- day moving averages, a helpful guide in identifying the near-term trend. The last time they crossed (bearishly then) was in late April when sterling was near $1.5350. It fell to a low near $1.4230 (May 20th) before launching the current recovery. We are reluctant to embrace this cross over as a bullish sign. We suspect the move to almost $1.48 earlier today may have completed, or nearly so, the correction.

Euro: The euro made new four year lows yesterday, The bounce off of its has been less than inspiring. Those gains have already generated over extended technical conditions on hourly momentum studies and it has not even been able to rise above its 5-day average (~$1.2283). There is a 5-point downtrend line drawn off the May 3, May 10, May 21, May 28, and June 1 highs. It comes in today near $1.2320. By Friday, when the US jobs data is expected (preliminary estimates coming in just above 500k) it is nearer $1.2230. Many European officials are still seeing a virtue in the euro's decline as long as it is not too fast. The rate of change has slowed since mid-May. We are still bearish the euro, but do not find the arguments in favor of Greece (or Germany) dropping out of the euro zone convincing. We believe that on the other side of the crisis, EMU will more more integrated not less.