Photo: Pixabay

August 21, 2020

USDCAD Open (6:00 am) 1.3194-98,  Overnight Range 1.3161-1.3226

  • Canada Retail Sales climb 23.7% in June
  • EURUSD sinks as Euro area PMI data disappoints
  • Lack of EU/UK trade talk progress weighs on GBPUSD

Source: Saxo Bank/IFXA Ltd

FX Recap and outlook:  Canada Retail Sales soared and are 1.3% above pre-pandemic levels.  It is a good result but irrelevant to USDCAD traders as domestic data is not a factor in current FX trading.  Instead, the focus is on US dollar sentiment.  Today, that sentiment is bullish, and the greenback is trading with gains against all the G-10 majors since yesterday’s close.

The longer term outlook for USDCAD is bullish.  The long term uptrend from October 2012 is intact while prices are above 1.3130 (monthly chart).  Canada’s massive budget deficit is expected to get even bigger if reports about Prime Minister Trudeau’s upcoming throne speech are accurate.  He is expected to unleash an avalanche of spending on new social and climate change programs, alongside corporate and personal tax increases.  It is hard to see how the “anti-business” agenda will spur international investment.  If the rumours prove true, there is an 80% chance  USDCAD hits 1.6000 with only a 20% chance to see 1.2000 in the coming year.

Overnight, the US dollar was up and down, opening  in NY with small gains compared to Thursday’s close.  Nevertheless, since Monday, the greenback is down across the board, against the G-10 majors.

Asia equity markets were modestly higher, except for Australia’s S&P/ASX index, which was a tad lower. European indices are positive, but uninspiring, while S&P futures are dancing around flat.   US Treasury yields slid and are at lows for the week.  Crude and gold prices are also down.

EURUSD inched higher in Asia touching 1.1882 as Europe was opening, then headed lower.  Prices dropped to 1.1761 in early NY trading after a series of soft Eurozone PMI reports, encouraged profit-taking.  Manufacturing PMI rose 51.7 in August, a tad lower than 51.8 seen in July, but below the 52.9 that was expected.  The miss was enough for some pundits to raise recovery concerns which encouraged EURUSD selling, although thin August markets and pre-weekend position adjustments probably played a significant role.

GBPUSD  mirrored EURUSD moves, falling from a peak of 1.3254 in Asia to 1.3102 in NY trading.  UK Retail Sales rose 1.4% m/m in July , beating the forecast of unchanged, and are higher than pre-pandemic levels.  August PMI data beat expectations, reaching seven-year highs.  It was ignored as the focus was on broad US dollar moves and EU/UK trade talks news.  That news was rather negative.

EU Chief Negotiator Michel Barnier said, “Too often this week it felt as if we were going backwards more than forward given the short time left.” He went on to say that he felt a deal was unlikely.

 UK Negotiator David Frost observed “The EU is still insisting not only that we must accept continuity with EU state aid and fisheries policy, but also that this must be agreed before any further substantive work can be done in any other area of the negotiation.”

USDJPY dropped from 105.80 to 105.45 in Asia and Europe, then climbed to 105.86 in NY.  A fall in US Treasury yields weighed on prices, and bearish USDJPY technicals are capping topside moves.

AUDUSD and NZDUSD traded quietly in narrow ranges.  NZDUSD traders ignored comments by RBNZ Deputy Governor Young Ha who warned that economic downside risks exceeded upside risks, and made a case about the effectiveness of negative interest rates.

US Data includes Existing Home Sales.

USDCAD Technicals:  The intraday USDCAD technicals are unchanged from Thursday.  Prices are  bearish below 1.3230 looking for a break below 1.3130 to extend gains 1.3000.  That may be difficult.  The 1.3130-35 area is significant support stemming from the long-term uptrend from October 2012.  For today, USDCAD support is at  1.3170 and 1.3130. Resistance is at 1.3230 and 1.3320.  Today’s Range 1.3160-1.3230

Chart: USDCAD monthly

Source:  Saxo Bank

FX open (6:00 am EDT) High, Low, and previous close

Source: Saxo Bank