February 5, 2020

USDCAD open (6:00 am EST) 1.3272-76   Overnight Range 1.3265-1.3298

Canada’s trade deficit narrowed sharply in December which is good news for the Canadian dollar. Unfortunately, the details were not nearly as supportive.  Statistics Canada wrote: “Canada’s merchandise exports rose 1.9% in December, mostly on higher crude oil exports, while imports edged up 0.2%.  exports for 2019 rose 1.7%, a slowdown from the gains in 2018 (+6.3%) and 2017 (+5.4%)” USDCAD barely budged on the news.

Last night, President Trump delivered the annual State of the Union address.  It was all election campaigning and a non-factor for markets.  Chinese authorities announced that there were 24,324 confirmed coronavirus cases (a 20% increase from Tuesday) and 490 deaths.  

Asia equity markets shrugged off the news and closed with gains across the board.  European bourses are higher and US equity index futures point to a strong open today.

 FX safe-haven trades continue to be unwound.  WTI oil prices are higher and gold prices are down. The US dollar opened with gains against JPY, CHF, and EUR.

Chart: Currency gain/loss (%) against the US dollar from NY close to NY open

Source: Saxo Bank/ IFXA Ltd

EURUSD was rangebound inside a 1.1022-46 band until rumours of a breakthrough in finding a cure for the coronavirus drove prices down to 1.1016 in early New York trading. Chinese TV reportedly claimed that Zhejiang University researchers had identified tow drugs to combat the virus. Euro-area Services and Composite PMI data reports were mostly positive. World Health Organization (WHO) officials are stepping all over the report saying “there are no known effective therapeutics.” Eurozone January Services PMI was better than forecast at 52.5, but Retail Sales data disappointed. December Retail Sales were down 1.6% compared to the 0.8% November rise. The intraday EURUSD technicals are bearish below 1.1080 looking for a test of support at 1.0980.

GBPUSD is in a battle of the bulls and the bears. Prices have traded erratically in a 1.2945-1.3205 range since Monday. Fears of a protracted, antagonistic trade negotiation with the EU which led to the sell-off are being countered by today’s better-than-expected January Services PMI report which surprised to the upside, printing 53.9, compared to the forecast of 52.9. GBPUSD is in a minor uptrend above 1.3110, with a break of 1.3070 targeting 1.3150.

USDJPY is on a tear. Prices climbed from 109.32 in Asia to 109.71 in early New York trading, on the back of the recovery in risk sentiment. Rumours of a coronavirus cure and a rally in US 10-year Treasury yields from 1.568% to 1.632% are underpinning prices.

AUDUSD rallied from 0.6725 to 0.6772 following comments from RBA Governor Philip Lowe, which suggested the central bank was not in a hurry to cut interest rates. Prices got an added lift from the improved risk sentiment tone. NZDUSD lagged AUDUSD gains due to a mixed NZ employment report and is trading in the middle of its overnight 0.6480-0.6501 range.

Oil prices extended yesterday’s losses after the weekly API crude stocks data showed a 4.18 million barrel increase in US inventories. They bottomed out at $49.52/barrel and soared to $51.06, in line with the rebound in risk sentiment. Gains may be limited as China is unlikely to ramp up oil imports anytime soon.

USDCAD continues to be buffeted by constantly shifting risk sentiment, while low oil prices and the Bank of Canada’s dovish monetary policy underpins prices. Bank of Canada Deputy Governor Carolyn Wilkins delivers a speech titled “Central Banking in a slow-growth world”, at 9:15 PST

US Non-manufacturing ISM data is on tap, but traders are more concerned with Friday’s nonfarm payrolls report.

 USDCAD Technical Outlook

The intraday USDCAD technicals are bullish, even as they consolidate Monday’s gains. The intraday uptrend is intact above 1.3240, with a break of resistance at 1.3300 extending gains to 1.3330. A break of this level targets 1.3380 while a move below 1.3240 leads to 1.3210. For today, USDCAD support is at 1.3240 and 1.3210. Resistance is at 1.3300 and 1.3350. Today’s Range 1.3230-1.3330

Chart: USDCAD 1 hour

Source: Saxo Bank