The countdown to the release of the FOMC statements has begun and FX traders are loath to get involved. The FX majors bopped and weaved inside narrow ranges in a quiet overnight market worsened by the start of a three-day holiday in Japan.
The expectation bar for today’s FOMC statement is low. The Fed hiked rates at the last meeting, the first of what many expect to be three rate hikes in 2017. Yes, the US dollar sank, in what appears to be a “we don’t buy what you are selling” message to the Committee members. Some analysts are expecting (hoping) for a bit of clarity as to the Feds rate hike plans for June, the odds of which are only 63.2%. If they get it, the US dollar will rally. If not, US dollar bulls will be praying that expectations for a strong employment report on Friday, will contain the sell-off.
EURUSD was flat in Asia and sold in Europe, and is trading choppily in New York inside the narrow 1.0909-35 overnight range. Traders ignored Eurozone GDP data (Actual 0.5% vs. forecast 0.5%) as it was as expected.
Sterling dropped from 1.2946 to 1.2884 just before Europe opened. A report that the European Union would demand €100 billion from the UK for leaving the EU, was behind the move. Better than expected Construction PMI data lifted GBPUSD from the low to 1.2935 but it has since retreated.
NZDUSD popped on better than expected employment data, rising from 0.6933 to 0.6967. Those gains and more were erased in Europe and NZDUSD traded at 0.6919 in New York.
AUDUSD inched higher in early Asia trading but then turned tail and dropped from 0.7544 to 0.7475 in early New York trading.
USDJPY traded sideways in Asia and then rose from 111.97 to 112.22 in Europe, where it opened in New York.
Oil prices jumped in after-hours trading yesterday due to the weekly API Crude stocks report showing a 4.15 million-barrel decline in inventories. WTI rose from $47.54/barrel to $48.20/b. Traders will be looking for the EIA data to confirm the API report.
USDCAD rallied hard yesterday, rising from 1.3654 to 1.3755. The move was fueled by a drop in oil prices and concern that Home Capital’s (alternative mortgage lender) financing woes were a precursor to a US style housing price collapse in Canada. They aren’t, but the damage was done. USDCAD traded sideways overnight but it has a bullish bias.
USDCAD Technical outlook:
The intraday and short term technicals are bullish. USDCAD is in an uptrend channel that began on April 17 and is still intact while prices are above 1.3680. which is also support from a prior triple top. A decisive move below 1.3630 would negate the upside pressure and argue for consolidation inside a 1.3530-1.3750 range. A break above 1.3750 opens the door to 1.3840 and then 1.4000. For today, USDCAD support is at 1.3680 and 1.3630. Resistance is at 1.3750 and 1.3840
Today’s Range 1.3680-1.3750
Chart: USDCAD 30 minute
Source: Saxo Bank
