June 3, 2020

USDCAD Open (6:00 am) 1.3505-09, Overnight Range: 1.3482-1.3571

• Profit-taking halts US dollar slide, temporarily
• ADP is better than expected (actual 2.76 million)
• China data boosts commodity currency bloc
• WTI prices churn despite API report of weekly drawdown
• US dollar sinks, rallies, then slips again in overnight and early NY action

24 hour Percent change in currency value

Source Saxo Bank

FX Recap and outlook:  The overnight US dollar slide came to a screeching halt in early New York trading.  A drop in oil prices sparked a bout of profit taking, which proved to be short-lived when the ADP employment report was better than expected.  That move sets the stage for a choppy session today.

Yesterday, Wall Street closed with strong gains, fueled by hopes the easing of COVID-19 lockdown restrictions would lead to a sharp economic rebound.  The Fed’s Zero Interest Rate Policy (ZIRP) has investors hunting for yield, while blissfully ignoring civil unrest sweeping across America.  American’s with free cash after buying guns and ammo are buying stocks.  The Dow Jones Industrial Average closed with a 1.02% gain yesterday, which set the stage for Asia and European equity indexes to rally.  The Nikkei closed, up 1.29% while Germany’s DAX is up 2.35% so far this morning.  S&P futures climbed 0.57% as of 8.45 am ET.

The Caixin China Services PMI index bolstered positive risk sentiment.  It rose to 55, well above forecasts and April’s 44.4 result.  AUDUSD jumped on the news, rising from 0.6880 to 0.6982, while NZDUSD popped to 0.6428 from 0.6362.  The gains were not sustained, and AUDUSD sank to 0.6876 in early NY trading.

AUDUSD  was unable to keep the the Caixin gains and it sank to 0.6876 in NY.

USDJPY consolidated yesterday’s gains in a 108.43-108.84 range.  Prices were underpinned by positive risk sentiment, the China PMI data indicating a post-pandemic rebound, and rising US Treasury yields.  10-year US Treasury yields climbed from 0.65% yesterday to 0.72% today.

EURUSD continues to climb, rising from 1.1168 to 1.1227.  Better than expected Eurozone unemployment (actual 7.3% vs forecast 8.2%), combined with slightly better (but still weak) Services and Composite PMI data, underpinned prices.  However, it is the hope for the proposed EU COVID-19 Relief Fund, and more aggressive ECB monetary stimulus measures announced Thursday, that is fueling the gains.  The EURUSD technicals are bullish above 1.1110 and looking for a test of 1.1290, following the move above resistance at 1.1170.

GBPUSD is mirroring EURUSD moves.  The short-term technicals are bullish above 1.2250, with the break above 1.2510, targeting 1.2780. UK Services PMI was a pathetic 29 but ignored by traders because it was a tick better than the 27.8 seen in April.  GBPUSD continues to rise despite reports the EU/UK trade talks are at an impasse.  Traders ignored a statement from Nissan, the largest UK auto manufacturer that said its production factory could be “unsustainable without a trade deal.”

WTI oil prices are well-along their way to filling the March 9 gap between $35.04 and $40.00/b

WTI oil prices are well-along their way to filling the March 9 gap between $35.04 and $40.00/b.  Prices jumped to $38.15 from $36.82/b after the API reported a decline of 0.483 million barrels in US crude inventories for the week ending May 29.  However, they dipped to 35.91/b in early NY trading before rebounding to $36.62.  Traders are betting that Opec and Russia will extend the 9.7 million bpd production cuts that expire June 30 to September 1.

USDCAD bounced off its overnight low of 1.3482 and touched 1.3571 in early NY trading, following a bout of profit-taking US dollar buying vs the G-10 majors.  Prices slid after the ADP data.  Today’s BoC meeting is expected to be a non-event.  Rates and monetary policy will be left unchanged as officials wait to see the results of their earlier stimulus measures.

The US ISM Non-Manufacturing PMI is forecast to rise to 44 from 41.8.

USDCAD Technicals:  The March 6 close-March 9 Asia open gap between 1.3430-1.3470 continues to act as a magnet for USDCAD.  Nature and FX abhor a vacuum.  The intraday downtrend from May 22 is intact while prices are below 1.3690, with a break below 1.3480 leading to 1.3430.  A break above 1.3730 is required to negate the downside pressure and would lead to a test of 1.4000. For today, USDCAD support is at 1.3510 and 1.3480.  Resistance is at 1.3580 and 1.3670.  today’s Range 1.3520-1.3620

Chart: USDCAD 4 hour

Source:  Saxo Bank