December 5, 2019

USDCAD open 1.3179-82 (6:00 am EST)    Overnight range 1.3166-1.3201

Bank of Canada Deputy governor Timothy Lane validated the USDCAD reaction to yesterday’s policy statement.  In a speech in Ottawa this morning, he said the recent domestic economic slowdown is expected to be temporary. 

USDCAD opened at yesterday’s low, undermined by the Bank of Canada’s somewhat hawkish monetary policy statement yesterday and extended losses after Mr Lanes speech. The statement noted there was “nascent evidence that the global economy is stabilizing, with growth still expected to edge higher over the next couple of years.” Traders jumped all over that statement while choosing to ignore the part where the BoC warned of “ongoing trade conflicts and related uncertainty are still weighing on global economic activity, and remain the most significant source of risk to the outlook.  

USDCAD was also undermined by news Canada’s Trade deficit narrowed rather than widened as forecast.

Once again, GBP led the major G-10 currencies higher while AUD and JPY underperformed.

FX Market Snapshot

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

Source:  Saxo Bank/IFXA

The highly anticipated OPEC General meeting is ongoing. Hopes that the Cartel (and friends) further reduce and extend production cuts is underpinning prices. WTI oil climbed to $58.67/barrel in early New York trading, from a low of $58.15/b.

Boris Johnson’s prospects of winning a Conservative majority, supported by his promise to boost spending, and cut taxes continue to drive GBPUSD higher. Prices rose from 1.3103 to 1.3146. However, a Conservative majority is not guaranteed, and there is plenty of time for Boris to do what Boris usually does, which is screw up.

EURUSD traded on the back of broad US dollar weakness. Traders ignored weak German factory orders data and weak Eurozone data. Eurozone October Retail Sales rose 1.4% compared to 2.7% in September. Unemployment change was 0.9% (previous 1.0% y/y), and Q3 GDP rose 1.2% y/y, as expected.

USDJPY traded sideways in a narrow range and is hovering around 108.87, the 200 day moving average. Prime Minister Shinzo Abe announced a $120 billion stimulus plan to help derail a potential economic slowdown. Prices were modestly supported by slightly firmer 10-year US Treasury yields which rose from 1.733% to 1.78%. However, yields are still below this weeks peak.

China is still insisting that a Phase 1 trade deal will only happen if tariffs are cut.  President Trump hasn’t tweeted his thoughts on the matter, which makes a December 15 deal, wishful thinking.

NZDUSD outperformed AUDUSD because the RBNZ increased its capital requirement for banks. AUDUSD was also weighed down by weaker than expected October Retail Sales. (actual 0% vs forecast 0.3%)

USDCAD Technical View

The intraday technicals are bearish following yesterdays break of support at 1.3270 and 1.3240.  A decisive breach of 1.3180 (50% Fibonacci retracement level of Oct 28-Nov.20 range) targets the 61.8% Fibonacci level of 1.3147., which guards 1.3106.  The long term uptrend comes into play in the 1.3070-80 area.  A break above 1.3210 targets 1.3250.  For today, USDCAD support is at 1.3170 and 1.3140.  Resistance is at 1.3205 and 1.3240.  Today’s Range 1.3140-1.3240

Chart:  USDCAD 4 hour

Source: Saxo Bank