USDCAD Open (6:00 am) 1.4021-25, Overnight Range: 1.3943-1.4034

  • China’s Hong Kong plan’s, rising US/China tensions, spark “risk-off” trading
  • WTI oil prices tumble 5.5% overnight, still up 8% since last Friday
  • US dollar opening with gains but will still finish with losses for the week

Percent change in currency value against US dollar-Mon. NY open to Fri. NY open (6:00 am EDT)

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Source: Saxo Bank/IFXA

USDCAD Focus: Statistics Canada reported“Retail sales fell for the first time in five months, plunging 10.0%” in March.  The result was bang-on expectations and so it had little impact on the currency.

USDCAD was on the precipice yesterday with a break below 1.3840, likely to extend losses to 1.3410. It didn’t happen.

A Chinese official said they would be implementing a new National Security Law for Hong Kong. President Trump responded saying, “the US would react strongly” if China follows through on its plans. Traders sold stocks, and oil, and bought US dollars. 

USDCAD rallied and blew through resistance at 1.3910 and 1.3950, enroute to 1.4034 overnight.

Yesterday, outgoing Bank of Canada Governor Stephen Poloz said he thought the the pessimistic outlooks for the domestic economy were “a little too dire, its over-blown.” He complained that analysts have been focused on poor numbers, rather than the nature of the downturn.

He said “I think that it’s this notion of GDP has got us too preoccupied. Yes, production has fallen, a lot. But underneath that, there’s not the behavioural adjustment by people which is normally associate with a recession or depression, a downward spiral in confidence,” “There’s very little reason for that to happen, or to be correlated even with the decline in GDP, because we just shut off the economy. And then [the federal government] put income supports to make sure people are cushioned for it.”

Those should have been soothing words, but they were ignored. Yesterday’s USDCAD rally is still just a correction, as the downtrend line from March remains intact while prices are below 1.4110.

The US economic calendar is empty.   Monday is Memorial Day in the US, which suggests a very quiet Friday afternoon, ahead.

USDCAD Technicals:  The intraday technicals are bullish while prices are above 1.3960, a level which is being guarded by support at 1.3980.  Minor resistance is seen at 1.4050, in front of the March downtrend line which is at 1.4110.  For today, USDCAD support is at 1.3980 and 1.3960.  Resistance is at 1.4050 and 1.4110. Today’s Range 1.3960-1.4050.

Chart: USDCAD daily

Source:  Saxo Bank

FX Recap and outlook:  China’s Hong Kong plans, Trump’s response, and Trump’s earlier tweets about Beijing’s handling of the COVID19 outbreak boost risk aversion.  US dollar is also in demand due to profit-taking, ahead of the long Memorial Day weekend in the US.

EURUSD extended yesterday’s losses, sliding from 1.0950 to 1.0888.  Weak German and Eurozone Manufacturing PMI data and failure to take out resistance in the 1.1025 area, drove prices lower, yesterday.  The shift to risk aversion sentiment triggered stop-loss selling on the break below 1.0940 in Asia, and prices never recovered. 

GBPUSD mirrored EURUSD moves.   Prices were weighed down by comments from Bank of England Deputy Governor Dave Ramsden warning of additional QE spending in June, adding that one needed an “open mind” on negative rates.  Record high budget deficit data and a 22.6% drop in April Retail Sales didn’t help.  The intraday technicals are bearish below 1.2260.

USDJPY is poised to extend losses as the break below support at 107.50 targets 106.80.  The selling pressure stems from safe-haven demand for yen and falling US Treasury yields.  The Bank of Japan left rates unchanged and announced a support package for small businesses.

AUDUSD and NZDUSD dropped on the back of broad US dollar demand, sparked by fears that China/US tensions would jeopardize the global recovery.

WTI oil prices dropped from yesterday’s peak of $34.61 to $32.03 in early NY trading, as pre-weekend profit-taking and fear that US/China tension curtail burgeoning demand. Nevertheless, they are still 8% higher than they were at last Friday’s close.

There isn’t any US data.  FX action will evaporate after lunch as traders get an early start to the long weekend.