October 3, 2019

USDCAD open 1.3333-37 (6:00 am EDT)    Overnight Range 1.3316-1.3337

American’s wanting to toast the news of a $7.5 billion award against the EU, with a glass of Roederer Cristal, may have found the price was 25% higher.  The World Trade Organisation (WTO) said that the European Union provided illegal subsidies to the EU. In retaliation, the US will apply tariffs to EU goods including a 25% tariff on French wine beginning October 18. Nevertheless, the US slapping tariffs on other countries is “old hat” and FX markets did not react.

The US dollar closed Wednesday with losses against the G-10 majors, except for the Canadian dollar. It opened this morning on a mixed note

FX Market Snapshot

Change in currency value against the US dollar from New York close to New York open

Eurozone economic data was a mixed bag. Composite and Services PMI and PPI data were below forecasts while August Retail Sales were a touch better than expected.  The news capped EURUSD at 1.0970 and knocked prices down to 1.0945.

GBPUSD consolidated yesterday’s gains in a 1.2267-1.2320 range. Prices were supported by broad US dollar weakness and yesterday’s Wall Street sell-off as well as positive developments on the Brexit front. Prime Minister Boris Johnson’s Brexit plan has fueled hopes that the October deadline may be extended.

USDJPY dragged along the bottom of yesterday’s range and traded in a 106.98-107.15 band. US recession fears and a drop in 10-year Treasury yields from 1.627% to 1.580% weighed on prices.

AUDUSD recouped losses after Commonwealth Bank September Services PMI data was weaker than forecast and the trade surplus narrowed. Prices bounced from 0.6704 to 0.6726. However, the two-week-old downtrend is intact below 0.6750.

Oil prices dropped after the Energy Information Administration reported US crude stocks rose 3.1 million barrels. Traders worried that oil supply would outstrip demand from rising inventories, rising US production, and slowing global growth. WTI dropped from $54.00/b yesterday to $52.27/b overnight.

USDCAD probed resistance in the 1.3340 area.  The topside is vulnerable to rising US recession fears due to the entwined US/Canada trade relationship. The adage that if Uncle Same catches a cold, Dudley Do-Right sneezes, is applicable. USDCAD was also underpinned by falling crude prices.

Markets are fickle. If today’s barrage of US data is better than expected, yesterday’s fears will be forgotten. Equities will rally, Treasury yields will rise, and so will the US dollar. The US data includes Jobless Claims, ISM Composite and Services PMI, as well as August Factory orders. However, FX reactions may be muted ahead of tomorrows nonfarm payrolls report.

USDCAD Technical View

The intraday USDCAD technicals turned bullish with the break above 1.3305, the level which had capped rallies since September 8.  Prices are now probing the next resistance zone in the 1.3340-80 zone.  A decisive break above 1.3330, which represents daily downtrend line resistance from June and 1.3355 (61.8% Fibonacci retracement of June/July range targets 1.3430 and then 1.3560.  A move below 1.3305 suggests further 1.3240-1.3340 consolidation. For today, USDCAD support is at 1.3305 and 1.3260.  Resistance is at 1.3340 and 1.3380.  Today’s Range 1.3260-1.3350

Chart: USDCAD 4 hour

Source: Saxo Bank