August 26, 2019
USDCAD Open (6:00 am EDT) 1.3303-06 Overnight Range 1.3287-1.3317
US Durable Goods Orders in July easily be the forecasts, rising 2.1% compared to estimates for a 1.1% gain. The news was largely ignored by FX markets which continued to digest the ebb and flow of US/China trade tensions.
Friday, Beijing slapped 5-10% tariffs on $75 billion of USD goods, in response to the new US tariffs that go in effect September 1. That afternoon, President Trump tweeted about his unhappiness with China’s actions.
He wrote “unfair Trading Relationship. China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30%… …Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1 at 10%, will now be taxed at 15%. Thank you for your attention to this matter!”
US equities tanked, Treasury yields plunged, and safe-haven currencies soared led by a 1.23% rise in the Swiss franc. Then Mr. Trump stepped aboard Airforce 1 to hijack the G-7 meeting in Biarritz, France. He was successful.
FX markets were in full risk-aversion mode at the Asia open. USDJPY gapped lower, dropping from 105.43 at Friday’s close to 104.46 and USDCHF fell to 0.9716 from 0.9748. US 10-year Treasury yields plunged to 1.45% from 1.536%. The major equity indices sank, led by a 2.17% fall in the Nikkei 225. The Chinese yuan dropped dramatically and hit its lowest level since 2008. Gold soared to $1,555.00. It was $1,495.45, Friday morning.
Change in Currency value vs the US dollar- NY close to NY open
Risk aversion sentiment eased with Trump’s announcement of a trade deal with Japan, but it was another Trump tweet that really shifted sentiment. He retweeted a story on Marketwatch which said, in part, China’s Chief Trade negotiator is “willing to resolve the issue through consultations and cooperation in a calm attitude and resolutely oppose the escalation of the trade war.” Not only that, China President Xi Jinping, whom Trump equated as an enemy on Friday, became a “great leader.”
European’s sold Euros, yen, Swiss francs. European equities rallied into positive territory after being deep in the red. US 10-year Treasury yields rebounded to 1.52%.
EURUSD traders ignored weaker than expected German IFO survey results. GBPUSD is consolidating last weeks gains and is trading in New York at the bottom of its overnight 1.2234-1.2284 range.
USDCAD traded in a 1.3275-1.3335 range since Friday. The currency pair has been insulated from the worst of the global FX turmoil due to Canada’s strong economic performance, and because it is home to the only G-10 central bank (other than the Bank of England) that is not in easing mode. In addition, relatively firm oil prices are also helping to cap USDCAD gains.
The intraday technicals are bullish while prices are above 1.3270, looking for a break above resistance at 1.3340 to extend gains to 1.3380 and 1.3440. A break below 1.3270 would lead to a test of 1.3210. Longer term, the uptrend line from the September 2017 low remains intact while prices are above 1.3070. It suggests that while prices are above 1.3280, a retest of 1.3660, (100% Fiboncci retracement level of 2017-2019 range) is likely. Today’s range 1.3270-1.3340
Chart: USDCAD 4 hour
Source: Saxo Bank