February 18, 2020

USDCAD open (6:00 am EST) 1.3252-56   Overnight Range 1.3234-1.3276

Canada manufacturing sales dropped again in December, the fourth month in a row.   USDCAD rallied on the news, rising from 1.3256 to 1.3276.

Source: Statistics Canada

The coronavirus took a bite out of Apple.  The technology-titan said it would not meet Q1 revenue expectations due to the impact of the coronavirus on i-Phone production.  Traders feared that other major companies relying on a China-supply chain will be similarly affected and sold stocks.  The major Asia equity indices closed with losses with the Nikkei dropping 1.4%.   European bourses are slumping, and US equity futures are down.

China said there were 72,436 confirmed coronavirus cases as of February 17 compared to 70,548, the day before and that the death toll stood at 1,800.

FX traders were concerned about the negative impact from the coronavirus on the global economy and bought safe-haven assets. The US dollar opened in New York with small losses against JPY, and CHF while positing gains against the rest of the G-10 majors.

Chart: Currency gain/loss (%) against the US dollar from New York close Feb.14  to New York open Feb 18 (6:00 EST)

FX recap and outlook: Monday saw very subdued FX activity due to the Presidents Day holiday in the US and Family Day in Canada

Apple’s earning’s warning fueled US dollar gains overnight while weaker than expected European data gave the greenback an added boost.

EURUSD inched down from 1.0849 yesterday to 1.0795 by in NY trading.  Prices are weighed down by fresh evidence of Eurozone economic growth underperformance compared to the US. The German ZEW Survey’s were far below expectations due to the coronavirus outbreak.   February Current Situation was -15.7 compared -10.3 while Economic Sentiment was 10.4 rather than the 30.0 forecast.  EURUSD has declined for 10 out of the past 12 days but has found some support in the 1.0820 area.  A break above 1.0860 would suggest further gains to 1.0920 while below 1.0820 targets 1.0750.

USD snapped a two-day slide after better than expected UK Claimant data which showed the number of unemployed people in January was 5,500, and the December result was revised down to 2,600 from 14,900.  However, Average Hourly earnings, with and without bonus were a tick lower than forecast.  GBPUSD dropped from 1.3058 on Monday to 1.2972 in Asia, before rebounding to 1.3047 post-data.

USDJPY dropped on the coronavirus fueled demand for safe-haven currencies and falling US Treasury yields.  Prices fell from 109.93 yesterday to 109.66 with 10-year US Treasury Yields falling from 1.591% on Friday to 1.542% today.

AUDUSD suffered from broad US dollar demand and a dovish spin to the Reserve Bank of Australia minutes.  They warned that the coronavirus was a material risk to the domestic economy.  AUDUSD plunged to 0.6675 from 0.6730 on Monday. NZDUSD mirrored the Aussie move.

WTI oil prices snapped the uptrend line from February 11, when they dropped below $51.90/barrel in Asia overnight, falling to $51.07/b in early NY trading.  Prices are vulnerable to further losses to $50.00/b, due to worries the coronavirus will be a more significant negative to global growth than previously thought, as well as Russia’s failure to agree with Opec’s request for another production cut.

USDCAD rallied along with the drop in oil prices and the shift in risk sentiment. There are major Canadian data releases this week, including CPI and Retail Sales. Better than expected results will limit gains.  However, the railway blockades by disgruntled Indigenous may offset benefits from the economic data if the government continues to dither.

USDCAD Technical Outlook

The USDCAD technicals are bullish while prices are above 1.3200, representing the daily uptrend line from January 6.  That level is guarded by 200 day moving average support which is at 1.3215.  A decisive break above 1.3260 risks a retest of 1.3320.   For today, USDCAD support is at 1.3230 and 1.3200.  Resistance is at 1.3290 and 1.3330.  Today’s range 1.3230-1.3290

Chart: USDCAD daily