June 12, 2020

USDCAD Open (6:00 am) 1.3534-38, Overnight Range: 1.3535-1.3665

• Euro area equity and S&P futures rally makes small dent in yesterdays losses
• UK April GDP plunges 20.4%, down 10.4% in 3 months to April.
• Oil prices sink on second-wave COVID-19 fears
• US dollar gives back some gains but remains higher across the board, compared to yesterdays NY open

Percent change in US dollar since Thursday’s NY open

Source: Saxo Bank/IFXA

FX Recap and outlook:  Global markets are licking their collective wounds this morning.  They have staunched the bleeding, but remain in intensive care.

Yesterday, Wall Street bulls got a physics lesson in stocks; the faster they rise, the harder they fall.  FOMO (fear of missing out) traders who helped drive the Nasdaq to record highs this week, became FOBI (fear of being in) traders, leading a wave of panic selling which pushed the Dow Jones Industrial Average to a 6.90% loss.

The combination of an unequivocally dovish Fed, a resurgence in US COVID-19 cases, and sinking oil prices sparked a wave of risk aversion sentiment and caught over-extended markets, off-guard.

Overnight, Asia traders reluctantly followed Wall Street’s lead but not nearly to the same extend. European traders are busy trying to recoup yesterday’s losses.  The FTSE 100 is up 1.34% but still has a long way to go to recoup Thursday’s 4.0% loss. The German Dax is in a similar boat.

GBPUSD traders ignored horrendous UK economic data, as weak data is the norm due to anti-COVID-19 measures.  April GDP dropped 20.4%.  A picture is worth a thousand words, so….

FX markets are taking their direction from global equity moves.  The major European indexes and S&P futures are higher, which led to broad US dollar selling in the hopes that Thursday’s market melt-down was merely a correction.

USDCAD surged.  It gained 2.6% between yesterday’s 1.3318 low and the overnight peak of 1.3662 before dropping to 1.3535 in NY trading.  Prices have since bounced to 1.35850.  USDCAD direction continues to be driven by US dollar sentiment with oil prices injecting a bit of support or resistance, depending upon their path.

WTI oil dropped from $39.90/barrel on Wednesday to $34.51 in Asia, overnight, which coincided with USDCAD touching 1.3662.  WTI bounced to $36.55/b in early NY trading.  Oil prices sank on the reports of a rise in coronavirus cases in the US, which raised concerns that supply would continue to outstrip demand.

Prices were already under pressure because of concerns that renewed US shale production would offset price support from the Opec production cut extension.

Today’s US data includes Michigan Consumer Sentiment (forecast 75 from 72.3).  However, Wall Street price action will continue to drive FX direction.

USDCAD Technicals:  the intraday USDCAD technicals flipped from bullish to bearish overnight with the break below the minor uptrend at 1.3590, looking for a break below 1.3520 to extend losses to 1.3440.  However, the medium term technicals turned bullish with the break above 1.3510, suggesting that a decisive break above 1.3680 would open the door to a test of 1.3880. For today, USDCAD support is at 1.3530 and 1.3480. Resistance is at 1.3590 and 1.3630. Today’s Range 1.3530-1.3620

Chart: USDCAD daily

Source:  Saxo Bank