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July 31, 2020

USDCAD Open (6:00 am) 1.3419-23,  Overnight Range: 1.3407-1.3439

  • Traders ignore forecast beating  Canada May GDP result
  • Eurozone GDP as ugly as promised, EURUSD stays bid
  • GBP is the best performing major G-10 currency as US dollar poised to end July on a losing note
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 Source: Saxo Bank/IFXA Ltd

FX Recap and outlook:  Canada May GDP rose 4.5% m/m, easily  beating the forecast for a 3.5 % gain.  It was the first increase in two months as measures to combat the COVID-19 pandemic ravaged the economy.  FX traders ignored the news because a rebound was expected and because the economic performance is still well-below pre-pandemic levels.  The report did contain some good news as Construction rose 17%, thanks to easing of COVID-19 restrictions in May.

The 7.5% jump in Raw materials prices was mostly due to rising crude prices.  Industrial prices inched higher as well, climbing 0.4%. 

USDCAD traders ignored the domestic data as the currency’s direction is being determined by broad US dollar sentiment, and to a lesser degree, oil prices.  US dollar sentiment is bearish.  EURUSD and GBPUSD pushed to new monthly highs overnight in a move partially fueled by month end portfolio rebalancing flows. 

USDCAD is trapped in a 1.3330-1.3470 ranges and has been since  July 21.  Canada’s economy is intricately linked to that of its southern neighbor and the US economy is looking a tad wobbly.  Rising coronavirus cases, which increased over 247,000 since Monday, has raised concerns for another economic slowdown, as many US states reimpose restrictions.  Traders are also concerned about that lack of a new stimulus program to replace the CARES Act, which expires today.

Sinking  oil prices are also supporting USDCAD.  Opec increases production by 2.2 million barrel per day as of August 1.  The increased supply, rising US crude inventories, and fears of a slower than expected rebound in demand are pushing prices lower.

Better than expected results combined with expected USDCAD selling for month-end, could drive prices to the 1.3350-70 area, which in my opinion, is a buy zone.

Asia equity indices closed on a mixed noted, with Japan’s Nikkei 225 and the Hang Seng modestly lower, while China’s Shanghai Shenzhen CSI 300 index ticked higher.  China Non-manufacturing PMI  at 54.2 was better than forecast but a tad worse than the 54.4 reported for June.  US stocks are set to rise at the open following yesterday’s  after-hours stellar earnings reports from “Big Tech”, including Apple and Amazon

GBPUSD is ready to close out July as the best performing-G-10 currency.  Prices extended yesterday’s gains, rising from 1.3088 to 1.3143.   There were not any announcements about a break-through in EU/UK trade talks, and there were not any blow-out UK economic data reports.  There is some talk that the bulk of the GBPUSD rally this week is due to month-end portfolio rebalancing flows.

USDJPY slid from 105.25 yesterday to 104.20 just before Europe opened.  Prices rebounded in part because Ministry of finance officials, who do not comment on FX levels,” said they were watching FX markets with urgency and saying, “stability is important.”  Prices bounced to 104.65 at the NY open.  Gains are limited as the technicals are bearish below 105.50.

Canada is closed Monday, so there will not be an AgilityForex update.

USDCAD Technicals:   The USDCAD technicals are bearish while prices are below 1.3570 which is the downtrend line from May 23 on a 4 hour chart.  That level is guarded by resistance at 1.3470 and while prices are below 1.3470, the focus is for a retest of support at 1.3330.  For today,  USDCAD support is at 1.3380 and 1.3330.  Resistance is at 1.3480 and 1.3530.   Today’s Range 1.3370-1.3460

Chart: USDCAD 4 hour

Source:  Saxo Bank