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New guidance from Fed next week - BMO Capital Markets

FXStreet (Barcelona) - Stephen Gallo, European Head of Currency Strategy at BMO Capital noted the key conditions in the FX space from around the clock.

Key Quotes:

"The more positive tone in US bond yields since yesterday’s CPI print continued to add support to the USD during the London morning. But softness in yields elsewhere and some short covering in the EUR acted as an offsetting drag."

"Equity and commodity price weakness are also probably acting as a drag on US rates. Weak equities and commodities are both USD supportive, but first and foremost they weigh on yields, and that initially harms USD divergence."

"USD/CAD traded in a narrow 1.1230/65 range during the Asian session and the London morning. WTI crude has been rubbing up against the $80/bbl mark again, and that is providing some very good support in USD/CAD between 1.1225 and 1.1250. This will continue for the remainder of the session on less US yields collapse and WTI moves back towards $81.50 or above."

"Yesterday’s US CPI print is a mixed blessing for the financial markets. On the one hand, it displayed no immediately alarming signals about downward price pressures in the US."

"On the other hand, if that data keep the Fed on course to continue normalising policy, disinflation risks may only be exacerbated in view of the current global backdrop. FX and rates need new guidance from the Fed, and that is not due until next week."

"Meanwhile, US rates, while safely above last week’s lows, appear to be capped. Amidst a range of second tier US data, USD/CAD players should mainly keep an eye on crude oil and US yields today."

"EUR cross rates will also be a good guide to intraday fluctuations in USD/CAD. 1.1200/10 to 1.1250/60 should be the range today unless any of those variables experience big swings."

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