May 6, 2020

USDCAD open (6:00 am EST) 1.4065-69    Overnight Range 1.4025-1.4109

  • ADP reports 20.24 million US job losses in April
  • European Commission predicts 7.7% drop in 2020 GDP
  • More weak Eurozone data weighs on EURUSD
  • US dollar opens firmly, except against JPY, then slides after ADP data

Percent change in Currency value against US dollar, NY close (5:00 pm EDT) to NY open (6:00 am EDT)

 Source: Saxo Bank/IFXA

FX Recap and outlook:  The US dollar retreated modestly after the ADP reported that 20.2 million jobs were lost in April.  Today’s results are in line with forecasts for Friday’s NFP report.

Traders are creatures of habit.  For most of this year, they have leaned toward buying US dollars ahead of the month nonfarm payrolls report, which was to be expected, as, before the pandemic, job gains were rather robust.  No one is suggesting that Friday’s NFP report will be robust.  The consensus forecast is for a loss of 21.85 million jobs, which is hardly a reason to be bullish US dollars.  On the other hand, the US economic recovery is certainly outperforming the Eurozone, which makes the greenback the “best of a bad lot.”

Oil traders have gone from paying people to take their crude, to dreaming of $50.00/barrel prices in the last half of the year, all within two weeks.   API reported US crude inventories rose 8.44 million barrels last week, but because it was a smaller build than the prior week’s 9.97 million barrel increase, WTI prices are 3.0% since yesterday.

EURUSD trading was uneventful in Asia, and for most of the European morning.  That changed when the European Commission (EC) released their Spring Economic Forecast and predicted: “the euro area economy will contract by a record 7¾% in 2020 and grow by 6¼% in 2021.”

EURUSD dropped from 1.0845 to 1.0783 on the news.  The forecast was no unexpected but combined with the spitting contest between the German Constitutional Court and the European Court of Justice over ECB quantitative easing, the news was another EURUSD negative.  German Factory orders data, Eurozone Services PMI, and Retail Sales reports also weighed on the single currency.

GBPUSD mirrored EURSD moves, further undermined by a steep drop in UK Construction PMI for April weighing on prices. Traders are awaiting the Bank of England meeting on Thursday. Rates are expected to be unchanged, leaving updated economic forecasts to drive GBPUSD direction.

USDJPY traded lower on the back of safe-haven demand for yen, amidst broad US dollar demand and a rise in US Treasury yields. 10-year US Treasury yields climbed to 0.68% from 0.60% yesterday.”

AUDUSD and NZDUSD consolidate recent gains supported by better than expected Australia Retail Sales and New Zealand employment data.  Asia session gains were erased following the US dollar surge, post-EC forecast.

USDCAD consolidated recent gains overnight.  Broad US dollar gains vs the majors offset the jump in oil prices.  USDCAD losses are also limited by expectations that Canada’s unemployment report, due Friday, will a loss of 4 million jobs.

USDCAD technical outlook:

The intraday USDCAD technicals are mixed inside a 1.4000-1.4110 range.  While prices are below 1.4110, the outlook is for a test of 1.4005, looking for a decisive break to target 1.3850.  A break above 1.4110 targets 1.4160 and then 1.4250.  For today, USDCAD support is at 1.4030 and 1.4005.  Resistance is at 1.4110 and 1.4150. Today’s Range 1.4030-1.4110

Chart: USDCAD 4 hour

Source: Saxo Bank