February 6, 2025
- Bank of England cuts rates by 25 bps-2 members wanted 50 bps.
- Risk sentiment is positive-focus shifts to Friday’s NFP report
- USD recoups some losses and opens higher across the board.
FX at a Glance
USDCAD open 1.4358 overnight range 1.4311-1.4367, close 1.4314
USDCAD tested downside support yesterday. It held, and prices climbed steadily throughout the day and overnight. Arguably, the 523 bp drop from Monday’s peak of 1.4793 was a much-needed correction to an overbought market. And the USDCAD sell-off did not occur in a vacuum; the major G-10 currencies also posted substantial gains against the greenback.
The greenback’s retreat is due to suggestions that Trump’s tariff flip-flop on Canada and Mexico is evidence the President merely wants to extract concessions from trade partners. However, Trump, the attention-seeking megalomaniac, is unpredictable, and the Canadian and provincial governments are preparing for tariffs on March 1.
Bank of Canada Governor Tiff Macklem is part of a panel discussion by video from Mexico. The discussion is “Future Challenges for Monetary Policy in the Americas,” and the text will be released at the end of the day (5 p.m. ET).
WTI oil prices traded sideways in a 71.04-71.80 range. The combination of the renewed China/U.S. trade tiff, OPEC’s plans to begin increasing production on April 1, and the Trump administration’s focus on energy is weighing on prices.
USDCAD trading will be interesting around 10:00 a.m. if prices are around 1.4400, as $1.6 billion of option strikes between 1.4400-10 expire.
USDCAD Technicals
The intraday USDCAD technicals are mildly bullish above 1.4310, looking for a break above 1.4380 to extend gains to 1.4440. A decisive break below 1.4250 suggests a drop to 1.4205.
Longer term, USDCAD is likely to be stuck in a 1.4250-1.4550 range until March 1, as the threat of Trump tariffs will underpin USDCAD.
For today, USDCAD support is 1.4310 and 1.4247. Resistance is 1.4380 and 1.4420.
Today’s Range: 1.4310-1.4410
Chart: USDCAD daily
Back to Basics on Trump Fatigue
Global markets have suffered from a barrage of bombastic pronouncements and executive orders since Donald Trump took office and Elon Musk took control. The Trump/Musk tandem is wreaking havoc inside and outside the U.S., with territorial expansion wishes, mass layoffs at the FBI and CIA, and the closure of USAID offices.
Fortunately, Treasury Secretary Scott Bessent diverted attention to interest rates when he said the administration’s focus in lowering rates is the 10-year Treasury yield. He claimed that the bond market is recognizing that under Trump, energy prices will be lower, providing non-inflationary growth. Coincidentally, the U.S. 10-year Treasury yield is at 4.42% after touching 4.596% on Tuesday.
Jobless Claims Rise
US weekly jobless claims rose by 6,000 to 219,000 last week but the news had little impact. Traders are awaiting Friday’s nonfarm payrolls data which is expected at 170,000 compared to last months 256,000 gain.
Equity Markets are Smiling 😊
Asian equity indexes followed Wall Street’s lead and rallied. Australia’s ASX 200 closed with a 1.23% gain, while Japan’s Topix finished up 0.25%. As of this writing, the UK FTSE 100 is up 1.13%, leading the rest of the European bourses higher. S&P 500 futures gave up earlier gains after disappointing results from Qualcomm.
EURUSD NY Open: 1.0361
Overnight Range: 1.0356-1.0406
EURUSD is on the defensive due to dovish comments from ECB board member Piero Cipollone. He said that the ECB has room to cut rates further but warned that the Eurozone economy would suffer if the U.S./China trade war led China to dump goods in Europe. Nevertheless, traders remain cautious ahead of Friday’s U.S. employment data.
GBPUSD NY Open: 1.2418
Overnight Range: 1.2407-1.2510
GBPUSD dropped below the overnight floor and touched 1.2361 in the wake of the Bank of England’s split decision to cut rates by 25 bps to 4.50%. Two board members (Swati Dhingra and Catherine Mann) wanted a 50 bps cut. Ms. Mann is on record for preferring an “activist monetary policy.” The Bank of England slashed its UK growth forecast to 0.75% from the 1.5% predicted in November, while also raising its inflation forecast to 3.7% from the 2.5% suggested in December. That was enough for traders to price in two more rate cuts likely in May and August.
USDJPY NY Open: 152.52
Overnight Range: 151.81-152.89
USDJPY lost ground in Asia, then rebounded into the European session. Hawkish comments from BoJ policymaker Naoki Tamura arguing for Japanese rates to reach 1.0% by the end of 2025 spurred the sell-off. However, profit-taking after the recent USDJPY rally lifted prices to the top of the overnight trading band.
AUDUSD NY Open: 0.6264
Overnight Range: 0.6255-0.6289
AUDUSD traded sideways but with a slight negative bias due to broad-based U.S. dollar demand. Traders remain cautious due to RBA rate cut expectations and concerns about the impact of the China/U.S. trade war on the domestic economy.
NZDUSD NY Open: 0.5660
Overnight Range: 0.5652-0.5692
New Zealand markets were closed for a holiday, leaving NZDUSD to mirror AUDUSD trading. A report from Bank of America projecting a strong AUDNZD due to interest rate differentials limited gains.
USDMXN NY Open: 20.6328
Overnight Range: 20.5590-20.6550
chopped about with a bit of a bid due to broad-based U.S. dollar strength, but gains were limited by the delay in Trump tariffs.
BTCUSD NY Open: 99,137
Overnight Range: 96,172-99,150
Bitcoin traded sideways and opened near the top of its overnight range. Prices got a bit of a lift because Eric Trump, Donald’s third son, wants BTCUSD to be included in the Trump family-backed crypto platform, World Liberty Financial.
FX high, low, open (as of 6:00 am ET)
China Snapshot
PBoC fix: 7.1691 vs exp. 7.2535 (prev. 7.1693)
Shanghai Shenzhen CSI 300 rose 1.26% to 3842.83
SMCP is reporting that domestic consumption was robust during the 8-day Lunar New Year, with consumer related industries posting a 10.8% rise in average daily sales revenue.
Sources: Yahoo Finance, Oanda, Investing.com, Google Finance
