December 12, 2019

USDCAD open 1.3168-72 (6:00 am EST)              Overnight range 1.3165-1.3177

The ECB, like the FOMC before it, left policy rates unchanged. No one expected any different. The statement said, “The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.” That bias wasn’t a whole lot different from the FOMC statement, yesterday.

The US dollar consolidated its post-FOMC losses overnight. The Fed left interest rates unchanged, with the dot-plot forecast predicting unchanged rates for all of 2020. The results were mostly “as expected.”

The US dollar closed yesterday with losses across the major G-10 spectrum and opened in New York unchanged.

FX Market Snapshot

Change in currency value against the US dollar from NY close to NY  open

Source:  Saxo Bank/IFXA

Today’s US data reports were soft to mixed, which supports the Fed’s outlook.  November PPI rose 1.1% y/y as expected but PPI, ex food and energy, at 1.3% y/y was below the 1.6% y/y forecast. Initial Jobless Claims were 252,000 compared to forecasts of 213,000. FX traders ignored the news.

Yesterday, the  FOMC delivered a somewhat dovish result. They predicted that US rates would remain unchanged in 2020 and forecast only one rate increase in 2021. The dovish tone was expected, and the US dollar was sold.

EURUSD drifted in a 1.1126-1.1146 range with a reported $4.05 billion of option expiries in the 1.1090-1.1150 range containing price action. Those options may have more to do with the price action than concerns about the ECB policy meeting today.

The Swiss National Bank left rates unchanged at -0.75% and said it would continue to intervene in FX markets.

GBPUSD dropped from 1.3221 to 1.3128 in early New York trading, following dovish remarks from ECB President Christine Lagarde. Today’s UK election is also playing a role. UK polling favours a Conservative majority. However, other polls pointing to a hung parliament, have weighed on prices. The polls close at 2200 GMT (5:00 pm EST)

AUDUSD and NZDUSD rallied ahead of, and following, the FOMC meeting and then consolidated those gains overnight. Australia Consumer Inflation Expectations were 4% in December, unchanged from November. New Zealand’s Monthly Inflation Gauge was 3.1%, as expected. Traders are waiting for news from the US/China trade discussions.

President Trump and his top advisors are supposed to meet today. There are plenty of rumours suggesting that Trump will go ahead with the tariff increase on December 15.

USDCAD dropped alongside the broad US dollar weakness. It came under additional pressure due to the rally in WTI oil prices. Prices climbed on the back of the weak greenback and despite the IEA forecasting global oil production to exceed demand in Q1 2020.

Bank of Canada Governor Stephen Poloz delivers a speech titled “Seeing the Big Picture with 2020 Vision.” The text will be available at 9:40 am PST.

USDCAD Technical View

The intraday USDCAD technicals are bearish.  Yesterday’s break below 1.3220 snapped the minor uptrend line and shifted the focus to 1.3110, the 76.4% Fibonacci retracement level of the October 28-November range of 1.3040-1.3320. The long-term uptrend line from September 2017, comes into play at 1.3100.  A move above 1.3230 would negate the short-term downtrend.  For today, support is at 1.3150 and 1.3110. Resistance is at 1.3180 and 1.3210.  Today’s Range 1.3120-1.3190

Chart:  USDCAD 4 hour

Source: Saxo Bank