March 23, 2020

USDCAD open (6:00 am EST) 1.4438-41    Overnight Range 1.4357-1.4487

  • Fed boosts monetary stimulus again in surprise announcement this morning.
  • S&P Futures turn frown upside down: limit down in Asia, up  over 3% in early NY
  • G-20 Finance Ministers and central bank governor’s emergency conference call scheduled for this morning.
  • COVIDE-19 cases spike 20% in Germany, UK said to be planning tougher lock-down rules.  Japan planning new stimulus action on March 30
  • Oil prices consolidating losses below Friday’s closing level
  • US dollar reverses all gains from Friday close to NY open, following Fed’s latest announcement.

Chart: Currency gain/loss (%) against the US dollar from NY close to 5:30 am PDT)

Source: Saxo Bank/IFXA

FX Recap and outlook: The US Fed announced more aggressive stimulus measures this morning.  The announced that they would add agency commercial mortgage backed securities to previously announced purchases.  The Department of the Treasury is providing #30 billion from the Exchange Stabilization Fund to support the flow of credit of employers, businesses and consumers.  They added a new facility, the Term Asset Backed Securities Loan Facility (TASBL) to enable the issuance of asset-backed securities of student loans, auto loans, credit card loans. In addition they announced two new facilities to support large employers.

US equity traders liked what they heard.  They turned S&P Futures positive, which was a far-cry from the limit-down move seen in early Asia trading.  News, the Trump administration failed to pass legislation to combat the COVID-19 outbreak, spooked Asia traders.  St Louis Fed President James Bullard didn’t help sentiment.  He was in full scare-mongering mode Sunday, predicting that US unemployment will rise to 30% in Q2 with GDP falling 50%.

EURUSD found its overnight session bottom in early Asia trading, dropping from Friday’s closing rate of 1.0701 to 1.0637 before rebounding to 1.0766 at the European open. Prices fell steadily to 1.0690, on the back of worsening coronavirus news in the Euro-area and the US failure to pass the COVID-19 spending bill. Prices recovered after the Fe announcement and reached 1.0802 before easing back.

Germany is opening its wallet.  The government is planning to increase borrowing by €156 billion and setting up a €500 billion bailout fund.

GBPUSD had a bit of a roller-coaster ride overnight, falling than rising, then falling again, in a 1.1535-1.1742 range.  Prices whip-sawed around coronavirus headlines, talk about curfews being imposed in the UK, and US political theatrics.  Prices opened in New York just above the overnight low and then jumped to 1.1655 after the Fed news.

USDJPY peaked in the early hours of Asia trading, reaching 111.24 then dropped to 109.67 by the European open.  A subsequent rally stalled at 110.84 in early New York and prices dropped to 110.03 alongside a drop in US Treasury yields.  Japanese Prime Minister Shinzo Abe promised another fiscal stimulus package would be released March 30.

NZDUSD plunged from 0.5724 at Friday’s close to 0.5591 in early Asia after the RBNZ announced a new quantitative easing program.  The $30 billion Large Scale Asset Purchase program was introduced to address rising negative economic implications from the coronavirus.  AUDUSD mirrored NZDUSD moves.

Oil prices extended Friday’s losses with WTI dropping to $20.82/barrel in Asia, which is a 24% drop from Friday’s $27.50/b peak.  Prices rallied Friday on hopes that Opec and US Shale producers would lead to a price support agreement.  It didn’t happen and US anti-trust laws suggest it won’t ever happen. Slowing demand from the COVI-19 outbreak and the Opec/Russia price war weighed on prices.

USDCAD price movements are glued to those of WTI.

USDCAD rises and falls with every WTI dip and rally.  USDCAD is underpinned by broad US dollar demand and fears that the current economic slowdown with morph into a full-blown recession.  USDCAD retreated to the overnight low on the back of widespread US dollar selling following the upsized Fed stimulus.

FX markets are waiting to hear the results of the G-20 conference call and developments around the US coronavirus spending bill.

USDCAD Technical Outlook

The USDCAD technicals are still sketchy.  However, the uptrend line from the beginning of March is intact while prices are above 1.4055.  That level is guarded by the minor uptrend from last Monday, which comes into play at 1.4250.  A break above 1.4490 extends gains to 1.4530 and then 1.4650.  For today, support is at 1.4340 and 1.4320.   Resistance is at 1.4480 and 1.4530.

Chart: USDCAD and WTI 30 minute

Source: Saxo Bank