• Today, all eyes will be on the Bank of Canada rate decision. The forecast is for the Bank to remain on hold once again. Policymakers maintained a neutral to dovish tone the last time they met, balancing every upbeat comment about the economy with a worried follow-up remark. The key message we got was that economic data are improving, but the Bank thinks it is too soon to materially alter its concerned stance, mainly due to uncertainties related to the outlook for trade.

• Indeed, BoC policymakers now probably feel vindicated about their cautious view, considering that shortly after that policy meeting, the US imposed tariffs on Canada. Given also that some recent economic data have been soft, with the core CPI rate falling further in April and February’s GDP stagnating, we consider it likely that the BoC will maintain, if not amplify further, its concerned message. Something like that could reverse some of CAD’s recent gains. However, we should note that the currency’s forthcoming direction may be decided to a large extent by the outcome of the OPEC & non-OPEC meeting tomorrow as well, considering Canada’s heavy reliance on oil exports.

• USD/CAD traded somewhat lower yesterday during the European morning, but the decline was halted near the 1.3460 (S2) support level and the rate then rebounded to break above the resistance (now turned into support) barrier of 1.3510 (S1). In case of a worried tone today by the BoC, the current rebound could continue and aim for the 1.3570 (R1) resistance territory. If the bulls manage to overcome that level, they could initially aim for the key hurdle of 1.3600 (R2).

FOMC minutes: Is a June rate hike on the cards?

• In the US, the Fed will release the minutes from its May policy meeting, where the Committee kept its policy unchanged and offered very few hints regarding the timing of the next rate hike. The most noteworthy point in the statement was that policymakers view the slowdown in Q1 GDP as transitory, implying this softness will not deter them from hiking rates again in the near-term should growth rebound in Q2. Besides that point, the statement was more or less a reiteration of the previous one and as such, we expect investors to scan the minutes for any clear clues as to whether the next hike is likely to come as early as June.

• At the time of writing, the probability for a June hike rests at 83%. If the minutes confirm the Bank is likely to act again as early as June, that probability could rise further and the dollar may gain somewhat. Having said that though, given the elevated expectations for a June action, any signs in the minutes that the Fed may not act as the market currently expects could generate a notable negative reaction in USD, in our view.

• USD/JPY traded higher yesterday, breaking above the resistance (now turned into support) barrier of 111.50 (S1). Should the FOMC minutes confirm the Bank is likely to raise rates again in June, we could see the rate move higher and challenge the 112.35 (R1) resistance zone. On the other hand, any cautious signals indicating that a June action is not as likely as market pricing suggests could cause the bears to retake control and push the battle notably lower. A decisive break below the 111.50 (S1) support could initially aim for 111.00 (S2).

As for the rest of today’s highlights:

• During the European morning, the economic calendar is relatively light. The only noteworthy indicator we get is Norway’s oil investment survey for Q2, though no forecast is available.

• As for the US economic indicators, we get existing home sales for April.

• We have two speakers on the agenda: ECB President Mario Draghi and ECB Executive Board Member Peter Praet. We think that market participants are likely to focus primarily on Draghi’s comments, amid heightened speculation regarding the prospect of a more optimistic tone by the ECB at one of its upcoming meetings.

USD/CAD

• Support: 1.3510 (S1), 1.3460 (S2), 1.3410 (S3)

• Resistance: 1.3570 (R1), 1.3600 (R2), 1.3640 (R3)

USD/JPY

• Support: 111.50 (S1), 111.00 (S2), 110.50 (S3)

• Resistance: 112.35 (R1), 113.10 (R2), 113.80 (R3)