“Hot enough for ya?” It may be a scorcher outdoors, but in FX land, currency pairs are bouncing inside well-defined ranges. The US dollar is starting the first trading day of the week in Toronto with small losses across the board except against Sterling and the Japanese yen.
Yesterday’s US equity market rally, fueled by Facebook gains and better than expected earnings from Berkshire Hathaway spilt over into overseas markets. Asia markets closed with strong gains, and Eurozone bourses are well into positive territory. US equity futures point to a positive open on Wall Street.
The equity market rally comes as the US officially sanctions Iran. Around 5:40 am, this morning, President Trump tweeted “The Iran sanctions have officially been cast. These are the most biting sanctions ever imposed, and in November they ratchet up to yet another level. Anyone doing business with Iran will NOT be doing business with the United States. I am asking for WORLD PEACE, nothing less!”
So far, FX markets have ignored the tweet. They have also ignored the China/US trade spat.
Oil traders zeroed in on the hostile US/Iran rhetoric and bought WTI oil which climbed from $68.77/b on Friday to $69.47 this morning.
GBPUSD has been the worst performing currency pair since Friday’s close. On the weekend, by UK International Trade Secretary Liam Fox warned the odds of a “No-deal Brexit” were about 60-40. That comment came on the heels of Bank of England Governor Mark Carney’s statement, last week, that a “no-deal Brexit” was the biggest risk to the UK economy. GBPUSD dropped from 1.3006 in Asia, yesterday to a low of 1.2922. Overnight price action saw GBPUSD firm, rising 1.2940 to 1.2972.
EURUSD extended Friday afternoon’s slide from 1.1602 to 1.1530 yesterday. The improved equity market tone and the downplaying of US/China trade risks has led to prices recovering to 1.1597 in early New York trading. Slightly better German trade data may have helped EURUSD sentiment.
USDJPY has traded in a 111.10-111.50 band after falling from 111.87 after Friday’s US employment data disappointed markets. The currency pair is under pressure from the retreat in US 10 year treasury yields from the 3.0% level and due to the China/US trade tensions.
The Reserve Bank of Australia left interest rates unchanged again. The statement suggests rates are not going anywhere, any time soon, according to analysts. AUDUSD and NZDUSD rallied on the back of broad US dollar weakness but stayed inside their well-defined ranges.
USDCAD sank on the back of the soft dollar tone and got a bit of support from rising oil prices. FX markets ignored the diplomatic kerfuffle with Saudi Arabia caused by Foreign Minister Chrystia Freeland. Taking a page from Donald Trump’s playbook, she thought it wise to criticise a foreign government via her Twitter account. On August 2, she tweeted “Very alarmed to learn that Samar Badawi, Raif Badawi’s sister, has been imprisoned in Saudi Arabia. Canada stands together with the Badawi family in this difficult time, and we continue to strongly call for the release of both Raif and Samar Badawi.”
The Canadian dollar could get another boost if today’s Ivey PMI Index beats the 64.2 forecast.
USDCAD Technical Outlook
USDCAD itechnicals are bearish below 1.3010 with a break of support in the 1.2940-60 area targetting a drop to 1.2840 and then 1.2730. A move above 1.3010 would suggests further consoldation in a 1.2950-1.3060 range. For today, USDCAD support is at 1.2950 and 1.2910. Resistance is at 1.2990 and 1.3010
Today’s Range 1.2940-1.3010