Photo: Pixabay

August 7, 2020

USDCAD Open (6:00 am) 1.3361-65,  Overnight Range 1.3304-1.3371

A screenshot of a cell phone

Description automatically generated

 Source: Saxo Bank/IFXA Ltd

FX Recap and outlook:  

Canada added 418,500 jobs in July, for a three-month  gain of 1.67 million.  The unemployment rate fell 1.4% to 10.4%, the second consecutive decline.

The US nonfarm payrolls results overshadowed the Canadian data.  US employment rose by 1.8 million while the unemployment rate dipped to 10.2%.  As of July, total nonfarm employment is 12.9 million, which is still lower than  what is was in February.

The US dollar gave back some of its overnight gains after the data was released but increased US/China tensions and pre-weekend profit-taking is still supporting greenback. Overnight, US dollar sellers took a time-out, and dollar buyers took control.  It didn’t start that way.  Asia FX was steady until Trump checked his polling data and saw “Sleepy Joe” Biden, wide-awake and leading by 9-12% as per YouGov polls, and Ipsos polls.  He issued executive orders against two Chinese apps, Tik Tok and WeChat, which the Wall Street Journal says gives a 45-day deadline for an American company to buy them.  (American data mining or China data mining-pick your poison)

That led to wave of “risk-off” sentiment washing over equity markets.  Asia indexes closed with losses, European Indexes are down but off their worst levels in early NY trading, and S&P futures are in negative territory.

USDCAD is underpinned by renewed  trade hostilities.  Trump declared another trade war, slapping tariffs on Canadian aluminum imports. 

On January 29, 2020, President Trump said about the new US, Canada, Mexico trade agreement: “The USMCA is the largest, fairest, most balanced, and modern trade agreement ever achieved.  There’s never been anything like it.”

A little more than six months later, on August 6, Trump said “Earlier today I signed a proclamation that defends American industry by reimposing aluminum tariffs on Canada.  Canada was taking advantage of us, as usual.  The aluminum business was being decimated by Canada, very unfair to our jobs and our great aluminum workers.”

Prime Minister Trudeau said, “Canada would respond with dollar-for-dollar retaliatory tariffs.”

USDCAD will be underpinned by the trade issues.  

 EURUSD dropped following the increase in US/China tensions, falling from 1.1882 to 1.1810 and is trading at the bottom of the range.  Traders are booking profits after this week’s robust gains ahead of today’s Nonfarm Payrolls report.  The consensus forecast is for an increase of 1.6 million jobs, but conflicting employment data from Jobless Claims, ADP, and the employment component of ISM, led to a wide range of guesses.

GBPUSD followed EURUSD lower, dropping from 1.3146 to 1.3086. Chancellor of the Exchequer Rishi Sunak said: “On Brexit, we remain confident that its possible to get a deal in September.”  That still leaves a lot of room for disappointment.

USDJPY traded sideways then ticked higher as traders twiddled their thumbs until today’s NFP announcement.  However, the technicals remain bearish following the break below 106.60 two weeks ago.

AUDUSD and NZDUSD suffered from the same malaise as the rest of the G-10 currencies, even though China reported robust trade data. 

USDCAD Technicals:   The intraday USDCAD technicals are bullish with the break above resistance at 1.3330 suggesting a short-term bottom is in place at 1.3235.  However, the downtrend line from May is intact while prices are below 1.3460 (4 hour chart) which argues for further 1.3230-1.3460 consolidation.  For today,  USDCAD support is at 1.3290 and 1.3230.  Resistance is at 1.3390 and 1.3430  Today’s Range 1.3310-1.3410

Chart: USDCAD 4 hour

A picture containing colorful

Description automatically generated

Source:  Saxo Bank