August 1, 2019

USDCAD open (6:00 am EDT) 1.3214-18          Overnight Range: 1.3187-1.3230

The US dollar rallied after the FOMC meeting and continued to do so overnight.  Yesterday’s 0.25% rate cut, which brought the Fed Funds range down to 2.0-2.25%, was not as dovish as expected.  Powell described the move as a “mid-cycle adjustment,” but not the start of a long rate-cutting series.

The US dollar closed the day with gains across the board, WTI oil prices climbed, Wall Street stocks sank and so did US Treasury yields.  Dollar demand continued in Asia, and then the greenback consolidated its gains during the European session.

AUDUSD and NZDUSD recouped some of their losses after Australia July PMI rose to 51.6 and the June result was revised higher. Prices got additional support from the China Caixin July PMI which rose to 49.9 from 49.4. Prices underpinned by reports China and the US trade talks would continue throughout August ahead of a planned face-to-face negotiation in September.

USDJPY roared higher, rising from 108.50 before the FOMC meeting to 109.31 in Asia.  The “less dovish than expected Fed and a surge in US 110 year Treasury yields from 2.005% to 2.058% fueled the rally.  The rally petered out in the Asia afternoon, and prices slid steadily, touching 108.96 in early New York trading.

EURUSD went into free-fall after the FOMC meeting and is hovering just above the overnight low of 110.32 in New York trading. Sentiment is negative because of the prospect of aggressive ECB easing while the Fed takes its time.  The single currency did not get any support from the slightly better July PMI data. (Actual 46.5 vs June 46.4)

GBPUSD plunged from a pre-FOMC level of 1.2240 to 1.2086 just before New York opened. “No-deal” Brexit fears continue to undermine the currency pair.  Traders ignored UK Manufacturing PMI data (Actual 48.0 vs 47.7)   The Bank of England left rates unchanged at 0.75% as universally expected and cut its economic growth forecasts.  They said, “underlying growth appears to have slowed since 2018 to a rate below potential, reflecting both the impact of intensifying Brexit-related uncertainties on business investment and weaker global growth on net trade.”

Oil prices soared yesterday after the EIA reported another significant drawdown in US crude inventories and US/Iran tensions remain elevated. Prices retreated from $58.74/barrel to $57.46 in Asia before rebounding to $57.87 at this morning’s open.

USDCAD touched 1.3105 yesterday following the better-than-expected May Canada GDP report.  The 0.2% gain beat the forecast for a 0.1% increase and suggested the Canadian economy is growing better than expected.  However, traders didn’t care.  USDCAD quickly erased its losses and then rallied following the FOMC announcement.  Prices climbed steadily overnight, and they continued to do so in New York trading, today.

Today’s round of US economic data may provide additional support to the greenback.  ISM Manufacturing, weekly Jobless claims and Construction spending are on tap.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish while prices are above  1.3140 and are flirting with resistance in the 1.3230-40 area.  A decisive break above this level suggests clear sailing until 1.3380.  A break of support at 1.3140 would shift the focus to 1.3050.  for today, USDCAD support is at 1.3190 and 1.3160.  Resistance is at 1.3240 and 1.3290.  Today’s Range 1.3190-1.3290.

Chart USDCAD 4 hour