USDCAD traders are singing “The Canadian dollar is sinking man, and it don’t want to swim” (with apologies to the Tragically Hip). USDCAD snapped the March downtrend line in Asia when it broke above 1.3390. The move suggests that a short term-bottom is in place at 1.3260 and it has hung a target on the 2017 peak of 1.3595.
This morning’s release of Canada Trade data didn’t help. Canada lipped into a Trade deficit in February (Actual – 0.97 billion vs +0.42 billion in January). A small dip in the US Trade deficit (Actual February -$43.6 vs. Jan.-$48.2 billion) provided the greenback with added support.
Overnight, risk aversion was the dominate theme.
Traders were spooked following the St. Petersburg, Russia terrorist attack, Trump’s veiled threat to North Korea, the Thursday/Friday meeting between China President Jinping and Trump, the French election debate, and concern that the Trump tax cut proposals won’t fly. Traders even got antsy on the drop in US vehicle Sales for March.
Individually and collectively, none of the events warrant a shift into risk aversion trading, but that is what happened. As Forrest Gump, would say, “Stupid is as stupid does.”
Nevertheless, the Japanese yen was in demand due to safe-have flows. USDJPY dropped from 110.92 to 110.27
In Australia, any good will from the much stronger February Trade balance data (Actual $3.57 billion vs. forecast $1.8 b) was erased by disappointment with the Reserve Bank of Australia policy statement. The RBA left rates unchanged but appeared concerned with employment and inflation levels. AUDUSD dropped from 0.7613 to 0.7552
EURUSD tumbled from 106.74 to 1.0645 weighed down by broad US dollar strength and concerns ahead of the presidential debate. Eurozone Retail sales was a tad stronger than forecast.
Sterling went for a walk-about in Asia, dropping from 1.2495 to 1.2421 in a thin market. The move was worsened by stop-loss selling below 1.2450.
Oil prices drifted lower overnight and touched $49.87. The intraday downtrend was snapped as US markets opened and WTI spiked to $50.62
The days before a non-farm payrolls release are usually filled with strange FX moves under-pinned by dubious rationale and this week is no different.
USDCAD Technical outlook:
The intraday USDCAD technicals are bullish following the overnight break of resistance at 1.3390. The longer term technicals are bullish above 1.3290. A break above the 1.3440-60 area targets 1.3490 and then the 2017 peak of 1.3535. A move below 1.3390 would risk a deeper correction to 1.3320. For today, USDCAD support is at 1.3420 and 1.3390. Resistance is at 1.3460 and 1.3490.
Today’s Range 1.3420-1.3490
Chart: 4 hour