March 13, 2020

USDCAD open (6:00 am EST) 1.3787-91    Overnight Range 1.3786-1.3946

  • European stocks and US futures rebounding after yesterday’s rout
  • S&P Futures hit “limit-up” as of 7:30 am EDT)
  • Fed injects liquidity to the tune of $1.5 trillion- QE4 perhaps?
  • China eases monetary policy-implementing targeted Reserve Requirement Ratio cuts
  • US dollar opened on a mixed note but will close the week with massive gains against the G-10 major currencies, led by a 5.10% rise against AUD.
  • Canadians self isolate, wrapped in toilet paper

 Chart: Currency gain/loss (%) against the US dollar from NY close March 6 to March 13 NY open (6:00 EST)

Source: Saxo Bank/IFXA

FX Recap and outlook:  It’s Friday the 13th.  It wasn’t a good day for campers at Crystal Lake, and the same may hold true for markets. The Fed injected liquidity into the short term funding market to the tune of $1.5 trillion.

Fed Chair Jerome Powell’s statement said: “The Open Market Trading Desk (the Desk) will offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement. Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule. The Desk will continue to offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.  He said the move was to “address the highly unusual disruptions in Treasury financing markets because of the coronavirus.”

Asia equity markets followed Wall Street’s lead and closed with losses.  However, European equity traders took solace in the Fed’s actions.  European bourses are trading higher, led by a 4.61% gain in the UK FTSE 100 index (as of 7:00 am EDT)

EURUSD is seeing a semblance of calm after Thursday’s wild ride. EURUSD peaked at 1.1330 in Asia, yesterday and plunged to 1.1064, after a disappointing ECB policy meeting.  Profit-taking and the Fed’s liquidity injection took prices back to 1.1220, which also capped overnight moves.

Yesterday, ECB President Christine Lagarde, paraphrasing her predecessor Mario Draghi, may have said: “how little it takes,” as she outlined the ECB’s monetary policy changes to combat COVID-19.  Although 50 basis point rate cuts were the norm for the likes of Bank of Canada, Bank of England and the Fed, the ECB left rates unchanged.  The ECB brain-trust seems oblivious to projections that much of Europe could face Italy-style quarantines.

USDJPY rallied to 106.47 from 104.60, as US Treasury yields rose and the Bank of Japan promised “ample liquidity” to help financial markets.

USDCAD soared to 1.3950 yesterday and closed at 1.3924.  Prices were boosted by weak-oil prices, coronavirus fears leading to cancellations and closures and broad demand for US dollars. However, the Fed’s liquidity injection leading to mild risk-on sentiment overnight attracted sellers and USCAD slid to 1.3786 at the NY open, before climbing to 1.3800.  The Canadian’s government’s tepid response to the COVID-19 outbreak is also supporting USDCAD.

Once again, equity price action and coronavirus headlines will drive FX direction. Economic data is ignored.

USDCAD Technical Outlook

The USDCAD technicals are bullish while trading above 1.3760 looking for a break above 1.3950 to extend gains to targeting 1.4015.  A break below 1.3750 would shift the focus to 1.3660.  For today, USDCAD support is at 1.3760 and 1.3710.  Resistance is at 1.3850 and 1.3910. Today’s range 1.3780-1.3880

Chart: USDCAD 4 hour

Source: Saxo Bank