July 11, 2019

USDCAD Open (6:00 am EDT) 1.3044-47   Overnight Range 1.3044-1.3080

It’s official.  The Fed is dovish.  Markets aren’t just expecting a 0.25% cut in the Fed Funds range on July 31 but have raised the odds of a 0.50% cut, to 30%.   Fed Chair Jerome Powell appeared to encourage that view in his testimony to Congress, yesterday.  He blamed trade concerns for a litany of woes that are slowing global and domestic growth. 

The minutes from the June 19 FOMC meeting were even more direct.  “Many judged additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook. Several others noted that additional monetary policy accommodation could well be appropriate if incoming information showed further deterioration in the outlook.”

Asian equity markets followed Wall Street’s rally. European bourses are higher, and US equity futures point to higher US stock prices again this morning.

In Europe, German Harmonized Index of Consumer Prices (HICP) rose 1.5% y/y in June, beating the forecast of a 1.3% increase, and underpinned EURUSD.  The single currency is probing resistance in the 1.1270-80 area, which if broken, will extend gains to 1.1350.  The US Trade Representative is looking at France and its plan to tax technology companies.

GBPUSD climbed from 1.2506 to 1.2555, supported by the broad US dollar weakness and profit-taking after rejecting weakness below support at 1.2440 yesterday.    A break of 1.2570 will extend gains to 1.2620.  Ongoing Brexit issues should limit gains. Prices may also have gotten a boost after the UK Navy said they thwarted a possible Iranian attack on a British oil tanker in the Strait of Hormuz.

In Asia, AUDUSD and NZDUSD climbed, supported by the dovish Fed and higher commodity prices.  USDJPY traded higher, supported by EURJPY demand.

West Texas Intermediate (WTI) oil prices gushed above $60.00/barrel yesterday following Powell’s testimony.  They got an added boost from supply concerns due to Gulf of Mexico storms that shut down several drilling rigs.  The rising UK/Iran tension didn’t help.

USDCAD dropped on the double whammy of a dovish Fed and a less than dovish Bank of Canada.  The BoC Monetary Policy report delivered a relatively upbeat economic outlook, although the rosy view was tempered by the potential, seriously negative impact on the domestic economy from an unfavourable US/China trade result.

This morning’s US CPI data is expected to rise 1.6% y/y.  A sharply higher than expected result would boost the US dollar as rate cut prospects would be re-assessed.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish.  Yesterday’s failure to break above 1.3140 and the currency pair’s drop back below 1.3080, shifted the focus to support in the 1.3040.  A break below this level will lead to a test of 1.2990-1.3000.  Longer term, the break belwo 1.3140 suggests further losses to 1.2797.

 Today’s Range 1.3020-1.3090

 Today’s Range 1.3020-1.3090

Chart: USDCAD hourly