February 5, 2025
- Risk sentiment improves as trade tensions ease
- Trump want to turn Gaza into the Middle East Riviera
- USD slides as long dollar positions get squeezed.
FX at a Glance
USDCAD open 1.4279 overnight range 1.4272-1.4345, close 1.4323
USDCAD traders are rapidly unwinding long US dollar bets which were placed in the run-up to the start of the US Canada trade war. The sell-off as erased all of the USDCAD gains since the start of the year.
However, it is Trump, which means the threat is still lingering. There is a narrative that Trumpe “blinked” implying Canada and Mexico “won.” If that gets any traction in the US media, how do you think Trump will react?
WTI oil prices dropped to 71.79 from 72.97 due to fears that a US/China trade war will reduce global demand. In addition, the 5 million barrel increase in US crude inventories reported by API did not help sentiment.
Canada’s Merchandise Trade deficit widened to $98.4 billion from $-78.98 billion.
USDCAD Technicals
The intraday USDCAD technicals are bearish while prices are below 1.4350 and looking for a break below the 1.4240-60 area to extend losses further. A break above 1.4350 negates the downside pressure and suggests further 1.4250-1.4550 range trading.
Longer term USDCAD support in the 1.4240-60 area remains intact and until a decisive break below this area, the USDCAD weakness is just a correction.
For today, USDCAD support is 1.4260 and 1.4240. Resistance is 1.4330 and 1.4360
Today’s Range: 1.4270-1.4360
Chart: USDCAD daily
The USA-CGPG
Who knew Donald Trump was a student of history? He is obviously impressed with the British Empire when Pax Britannica controlled about 25% of the world’s landmass and population. At the time, Britain was the world’s leading industrialized power and had the most powerful navy, which ensured they controlled the sea lanes. Unfortunately for the Brits, that era was over by 1914.
It appears as though President Trump has similar aspirations for the USA.
Trump wants to expand America to include Canada, Greenland, Panama, and now Gaza (USA_-GPG).
Yesterday, Trump announced that the US should take over Gaza, saying, “We’ll own it and be responsible for dismantling all of the dangerous unexploded bombs and other weapons on the site, level the site and get rid of the destroyed buildings,” and turn it into the Middle East Riviera. He is obviously unaware of America’s track record in taking over and running Arab countries.
Attention Shifts to Data
With trade war tensions easing somewhat, traders will be looking for the ADP employment report and ISM Services PMI data to provide clues as to the Fed’s interest rate outlook. ADP employment rose 183,000 compared to the forecast of 150,000 while the December result was revised upt to 176,000 from 122,00. That suggests the US economy is still creating jobs and that the Fed can leave rates unchanged for longer.
EURUSD
NY Open: 1.0423
Overnight Range: 1.0370-1.0431
EURUSD rebounded as North American trade tensions eased and China’s reaction to Trump tariffs was somewhat muted. However, Trump has not retracted his threat of tariffs on the EU, but Treasury Secretary Scott Bessent is attempting to smooth ruffled feathers. He called EU President Christine Lagarde to affirm the importance of the EU-US trade relationship.
GBPUSD
NY Open: 1.2540
Overnight Range: 1.2464-1.2550
Traders shrugged off tepid UK Composite and Services PMI reports, which were slightly lower than previously, preferring to focus on the improved global risk sentiment. The Bank of England is expected to cut rates by 25 bps to 4.50% tomorrow.
USDJPY
NY Open: 152.65
Overnight Range: 152.55-155.46
USDJPY plunged overnight following a sharp jump in wage growth in December (actual 4.8% y/y, forecast 3.8%, previous 3.9%), which added support for another Bank of Japan rate hike. Lower US Treasury yields helped, with the 10-year yield falling to 4.51% overnight.
AUDUSD
NY Open: 0.6285
Overnight Range: 0.6240-0.9291
AUDUSD rallied on improved risk sentiment from yesterday’s announcement that averted a Canada/US and Mexico/US trade war, at least for a month. China’s restrained response to the US tariffs was encouraging, which contributed to equity market gains. Australia’s Services PMI showed business confidence at a 32-month high. S&P wrote, “There was good news all around, with activity and new orders rising at faster rates, while business confidence strengthened further.”
NZDUSD
NY Open: 0.5689
Overnight Range: 0.5643-0.5693
Kiwi traded higher thanks to improved risk sentiment. China returned from a week-long break and delivered a somewhat tempered, measured response to Trump’s tariffs, suggesting an immediate escalation in the trade war would not happen. New Zealand employment data was in line with expectations and not a factor.
USDMXN
NY Open: 20.4953
Overnight Range: 20.3156-20.4839
USDMXN is consolidating Tuesday’s losses after Trump blinked and backed off from imposing sanctions for at least a month. Prices are above yesterday’s low, but the tariff risk has not gone away.
BTCUSD
NY Open: 97,751
Overnight Range: 97,127-100,800
Bitcoin traded defensively despite seemingly positive developments. Trump’s Crypto-Chief David Sacks said that officials will be studying the feasibility of establishing a Bitcoin reserve. However, negative equity sentiment after Google’s earnings disappointed investors weighed on prices.
FX high, low, open (as of 6:00 am ET)
China Snapshot
PBoC fix: 7.1693 vs exp. 7.2661 (prev. 7.1698)
Shanghai Shenzhen CSI 300 fell 0.50% to 3795.08
Caixin Services PMI ticks lower to 51 from 52.3 suggesting services sector growth may be slowing. The PBoC deferred from weakening the yuan in defence of Trump’s latest tariff salvo which may be a sign authorities expect to negotiate. Trump, though, seems to be in no hurry and he didn’t react to Beijing’s retaliatory Tariffs. Chart: USDCNY
Sources: Yahoo Finance, Oanda, Investing.com, Google Finance
