Welcome back. It’s a brand new year, but the December drama is back for an encore. Asia equity indices did not have a good start to the year thanks to poor Caixin China Manufacturing PMI data. The 49.7 reading for December, (forecast 50.1, November 50.2) suggests China’s economy is in “contraction” territory. China’s Shanghai Shenzhen 300 index led Asia equities lower. The US dollar sank on the news but markets were very thin with New Zealand, and Japan closed.
Eurozone traders were more forgiving of the China data, helped by positive Eurozone Manufacturing PMI data. (Actual 51.4 vs forecast 51.4) The November numbers were revised higher. Nevertheless, EURUSD was dragged lower by GBPUSD. Better than expected UK Manufacturing PMI (54.2 vs forecast 52.5) was dismissed as due to “no-Brexit” planning activity.
FX markets are in risk aversion mode. Global equity market weakness and concerns that the Fed is out of step with reality are taking a toll. The US government shutdown is a concern and President Trump’s positive tweet about the progress of China/USA trade talks was ignored. Free-falling oil prices are another concern. WTI oil touched $42.55/barrel on Christmas Day, rebounded to $46.97 and then traded in a $44.35-$46.44/b range since then.
CIBC economists suggest the oil price drop makes a January rate hike by the Bank of Canada, implausible.
USDCAD traded choppily with a bullish bias in a 1.3510-1.3665 range since December 21. Prices are supported by expectations of a dovish Bank of Canada policy, low crude prices, bouts of global risk aversion and bullish technicals
USDCAD Technical Outlook
The USDCAD tehnicals are bullish. The intraday uptrend from September is intact above 1.3360, a level guarded by support in the 1.3560 area. A break below 1.3560 would lead to a test of 1.3510 and 1.3450. Intraday resistance is at 1.3660 area which if broken targets 1.3705 and then 1.3750. Fro today, USDCAD support is at 1.3605 and 1.3560. Resistance is 1.3660 and 1.3705. Today’s Range: 1.3605-1.3660 h