Overnight Range 1.3060-1.3140
The Canadian dollar inched higher, supported by firmer oil prices, in a somewhat somnolent overnight session. USDCAD has punched below the overnight low in early New York trading which has bearish implications.
Asia traders seemed to take the European Central Bank decsisions in stride. Yesterday, the ECB opted to extend quantitative easing until the end of 2017 while “tapering” purchases by €20 billion per month. The lower amount for a longer time added up to an increase in QE and that attracted EURUSD bears.
The single currency got crushed during the New York session but went nowhere in Asia and Europe, content to see-saw within a narrow 1.05885-1.0625 range.
Various ECB officials were in the media defending the ECB decision. “There are political risks everywhere, inside and outside of the euro zone.” ECB Executive Board Member Benoit Coeure said “It’s not up to the ECB to manage political risks, that’s for the politicians to do, but it’s up to us to draw the economic consequences and the euro zone will still need financial protection to get through 2017, which will be very risky.”
In Japan, traders liked the ECB’s actions. Extending QE was viewed as positive for risk sentiment and USDJPY rallied, rising from a low of 113.92 to 114.60 at the New York open. Expectations for a widening of Japan/US interest rate differentials provided additional support
The improved risk sentiment and China CPI and PPI reports that met expectations, lifted AUDUSD while NZDUSD drifted sideways.
Sterling climbed from a low of 1.2555 to 1.2620 in Europe, supported by a combination of profit taking ahead of the weekend, a narrowing of the trade deficit and a healthy jump in Consumer Inflation Expectations. (Actual 2.8% vs previous 2.2%)
Oil prices added to yesterday’s gains, climbing from $50.74 to 51.48. Traders are hoping that this weekends meeting between Opec and non-Opec producers results in additional production cuts. That may be wishful thinking since only 5 of 14 non-Opec nations bothered to show up. Azerbaijan, Kazakhstan, Oman, Mexico and Russia)
The oil story and the prospect of further gains has emboldened USDCAD bears. They appear to be taking advantage of this week’s Bank of Canada statement which wasn’t as doveish as some analysts predicted, to pressure weak USDCAD long positions. The move below the 100-day moving average (1.3192) has placed a target on the 200-day moving average (1.3073)
The oil meeting and the looming FOMC decision are all the incentive needed for FX traders to book some profits and then hug the sidelines, ahead of the weekend. This morning’s data (Michigan Consumer Sentiment Index-prelim) won’t do anything to change the outcome of next week’s FOMC meeting, so it will have minimal impact.
USDCAD Technical outlook
The intraday USDCAD technicals are bearish. The downtrend from the end of November remains intact while prices are below 1.3270, a level guarded by previous support, now resistance at 1.3250. The break below the 100-day moving average at 1.3192 argues for a visit to the 200 moving average at 1.3073. which also represents the long-term uptrend line from the May low. There is support in the 1.3020-60 area but a move through 1.3020 would target 1.2888, the 61.8% Fibonacci retracement of the May November range.
For today, USDCAD support is at 1.3160, 1.3130 and 1.3110. Resistance is at 1.3205 and 1.3250
Today’s Range 1.3060-1.3240
Chart: USDCAD 4 hour