March 19, 2020

USDCAD open (6:00 am EST) 1.4499-03    Overnight Range 1.4428-1.466

  • ECB unleashes PEPPy (Pandemic Emergency Purchase Program)
  • Global demand for US dollars risks concerted G-7 central bank intervention
  • Asia equity indexes follow Wall Street lower
  • European stocks are down after giving back earlier gains.  US equity futures are in the red
  • Reserve Bank of Australia emergency OCR rate cut- to 0.25% from 0.50%.
  • Oil prices reverse European rally
  • US dollar extends overnight gains in early NY trading.

 Chart: Currency gain/loss (%) against the US dollar from NY close to NY open (6:00 EST)

Source: Saxo Bank/IFXA

FX Recap and outlook:  The European Central Bank fired a €750 billion bazooka, in a “better late than never” response to the coronavirus pandemic.  The ECB press release said they decided to “launch a new temporary asset purchase programme of private and public sector securities to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19.”

EURUSD traded erratically after the news.  It rose from 1.0900 to 1.0981, the retreated to spend the rest of the Asia session in a 1.0880-1.0915 range. Europe bought EURUSD initially, taking it to 1.0944 before free-falling to 1.0801 in early New York trading..

EURUSD- price movement 30 minute/5 day

History lesson:  In 1985, the G-5 (USA, France, West Germany, UK, and Japan) leaders met in New York’s Plaza Hotel and agreed to devalue the US dollar by joint intervention. The deal became known as the Plaza Accord.  Less than two years later, the G-7 got together at the Louvre in Paris, to stem the steep fall in the US dollar they had precipitated.  The COVID-19 pandemic is de-railing the global financial system.  The scramble for liquid assets, fears of a credit crunch, and margin calls have investors liquidating positions ands scrambling for cash. 

Not just any cash but US dollars.  The US dollar index, (DXY) has soared 6.5% in less than two weeks.  It wouldn’t be too much of a stretch to suggest a bout of G-7 FX intervention to inject US dollars into the system, helping to calm markets.

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US dollar Index 3 month performance.

Sterling has been crushed.  GBPUSD fell 13% since March 9, dropping from 1.3190 to an overnight low of 1.1470. Prices are hovering near the low in early New York trading.

GBPUSD traders are contending with the fall-out from the stampede into US dollars, in addition to rising fears around the UK/EU trade talks. EU Chief Trade negotiator Michel Barnier tested positive for the COVID-19 virus.  London is joining the trend to limit social interaction by closing may underground stations and asking citizens to limit travel.

USDJPY rallied on the back of firm Treasury yields and the widespread buying of greenbacks.  AUDUSD plunged following the surprise RBA rate cut but prices rebounded during the European and early New York trading sessions.

USDCAD had a wild ride since St Paddy’s day. Prices climbed from 1.4065 Tuesday morning to 1.4667 overnight, before plummeting to 1.4460 just before New York opened.  They have since drifted higher, supported by extremely low oil prices.  Alberta’s crude export Western Canada Select traded at around $10.00/barrel yesterday, another Canadian dollar negative.

FX market liquidity is poor due to the extreme price movements seen in most of the major currency pairs.  Traders will continue to focus on COVID-19 headlines, city lockdowns, and equity price action while ignoring economic data.

USDCAD Technical Outlook

The USDCAD technicals are mostly useless in this environment. The intraday uptrend is intact above 1.4340, looking for a retest of the overnight 1.4667 peak.  A move above 1.4700 will take the currency to levels last seen in 2003.  put USDCAD support is at 1.4450 and 1.4360.  Resistance is at 1.4600 and 1.4670. Today’s range 1.4520-1.4670

Chart: USDCAD monthly

Source: Saxo Bank