May 4, 2020

USDCAD open (6:00 am EST) 1.4101-05    Overnight Range 1.4053-1.4151

  • Renewed tariff threats between Trump and China spook, holiday-thinned Asia markets
  • Easing of lock-down restrictions limit losses
  • German court rules on legality of ECB QE program on Tuesday
  • US dollar giving back gains in early NY trading.

Percent change in Currency value against US dollar, NY close (5:00 pm EDT) to 5:35 am PDT

 Source: Saxo Bank/IFXA

FX Recap and outlook:  President Trump was at his bombastic best yesterday. He threatened to terminate the Phase 1 China/US trade deal if Beijing doesn’t buy the agreed $200 billion in American products. Electioneering? Perhaps. Kicking an opponent while they are down? Certainly.! Trump said “They took advantage of our country. Now they have to buy and, if they don’t buy, we will terminate the deal. Very simple.”

The US dollar gapped higher at the Asia open. S&P Futures dipped as did oil prices and US Treasury yields. However, the move was exaggerated due to poor liquidity as China and Japan were closed for holidays. The easing of COVID-19 restrictions in Europe limited the risk-off losses and prices recovered slightly, in Europe.

EURUSD dropped on Trump’s comments, falling from 1.0982 at Friday’s close to 1.0924 in Europe. Prices were also weighed down ahead of Tuesday’s ruling from a German court ruling on the legality of certain ECB actions. 

The UK Daily Express said the court “will decide whether the ECB’s bond-buying programme can deviate from the so-called capital key. The key dictates purchases according to the size and population of each country. During the coronavirus crisis, the ECB has been buying Italian debt well above the pace set by its own rules.” Eurozone data didn’t help Markit Manufacturing PMI dropped to 33.4 in April, a tad weaker than the 33.6 expected.”

GBPUSD suffered from broad US dollar demand and is trading at the bottom of its overnight 1.2405-1.2498 range. Ongoing worries around the EU/UK trade talks and the impact of COVID-19 measures are also hurting the currency. A survey by Deloitte reported that Business confidence was at an all-time low.

USDJPY dropped at the Asia open and quickly recovered, starting the New York session nearly unchanged from Friday’s close. Bearish sentiment from renewed negative risk sentiment is offset by news of the gradual reopening of the US economy.

AUDUSD and NZDUSD fully recovered from Asia opening losses, supported by the retreat in the US dollar. Bullish sentiment is supported by plans to open a “travel bubble” between Australia and NZ.  NZ Foreign Minister Winston Peters declared Australia and New Zealand were “beating the crap” out of the coronavirus.

WTI oil prices crashed at the Asia open, falling from $19.70/barrel to $18.08/b following Trump’s tariff comments but have rebounded to $18.74 in early NY trading.

USDCAD popped to 1.4151 from 1.4089 in Asia and then rallied steadily reaching 1.4053 in Toronto, today. Prices are tracking US dollar moves and dropping on hopes for a steep post-COVID-19 lockdown recovery. The new Bank of Canada Governor is a former Deputy Bank of Canada Governor, Tiff Macklem, who gets Stephen Poloz’s office on June 2. 

Traders are looking ahead to Friday’s US and Canadian employment reports, both of which will be ugly. Canada is forecast to lose 2.75 million jobs while the US is expected to drop 20 million.

 The data calendar is empty.

USDCAD technical outlook:

 The intraday USDCAD technicals are bullish while trading above 1.4040, however, the failure to break above 1.4160, suggests a short-term consolidation phase in the 1.4040-1.4160 range.  A break above 1.4160 targets 1.4260 while a move below 1.4040 sets up a retest of 1.3970.  For today, USDCAD support is at 1.4050 and 1.4005.  Resistance is at 1.4150 and 1.4190. Today’s Range 1.4050-1.4130

Chart: USDCAD 1 hour

Source: Saxo Bank