Photo: Wikimedia

February 11, 2020

USDCAD open (6:00 am EST) 1.3292-96   Overnight Range 1.3291-1.3318

People are sick from the coronavirus, but financial markets appear to be sick of hearing about the coronavirus.  In what looks to be like a case of “I’m not ill, it sucks to be you,” Chinese and Hong Kong traders bought stocks, leading to a mixed performance of Asian equity indexes.   European bourses posting new record highs and US equity futures are poised to add to yesterday’s gains.

The US dollar closed yesterday with gains against the major G-10 currencies, except for JPY and CHF which were flat, but gave back a little of that move by today’s open.

Chart: Currency gain/loss (%) against the US dollar from New York close to New York open

Source:  Saxo Bank/IFXA

 FX Recap and outlook: “It’s the same old story, same old song and dance, my friend.” Aerosmith’s 1974 tune of the same name aptly recaps the overnight FX markets.  US economic outperformance compared to the other major G-10 economies and safe-haven demand for dollars continues to underpin the US dollar.

FX traders were cautious ahead of Fed Chair Jerome Powell’s testimony to Congress today. The text of the Fed’s Monetary Policy Report is already released. The MPR repeated that the “labor market continued to strengthen, GDP growth increased at a moderate pace, and inflation is below the 2.0% objective.” That’s old news.  Markets are more interested in Powell’s response to questions about the coronavirus impact on the US economy.

EURUSD consolidated yesterday’s losses following the break below support at 1.0940, drifting in a 1.0906-16 range.   EURUSD sentiment was already negative because of European Central Bank policies, and a potential trade spat with President Trump.

It worsened alongside German political uncertainty, arising from disarray in Angela Merkel’s CDU party.  EURUSD technicals are bearish below 1.0940 looking for a test of 1.0880.

GBPUSD traded narrowly in Asia and then popped to 1.2940 from 1.2895 after a slew of UK economic reports were released.  The data was mostly negative.  UK Q4 GDP was flat, as expected, while Industrial and Manufacturing Production data was weaker than expected.  Prices retreated from the top, and the sentiment is bearish, due to the downside risks from trade negotiations.

USDJPY continues to consolidate gains in front of 110.00 resistance.  The modestly improved tone to risk sentiment and rebounding US Treasury yields are supporting prices.

AUDUSD rejected losses below support at 0.6660 last week and has been inching higher ever since.   A sustained break of 0.6705 suggests a short term bottom is in place.  AUDUSD will get an added boost when coronavirus cases start to decline.  NZDUSD traders are looking ahead to Wednesday’s RBNZ monetary policy meeting.  Interest rates are expected to be left unchanged.

WTI oil prices returned from their trip below $50.00/barrel.   A test of support at $49.40/b held, leading to a bout of profit-taking which lifted prices to $50.50/b overnight.  Oil bulls are hoping Opec and Russia will agree to further production cuts to offset lost China crude demand.

USDCAD is slow-dancing with US dollar sentiment. Canada Finance Minister Bill Morneau stated the obvious when he told a Calgary audience “the (corona) virus is undoubtedly going to have an economic impact. He didn’t say anything about the Trans Mountain pipeline debacle, the cost of which jumped 68%, to $12.6 billion from $7.4 billion, perhaps believing “pipeline costs balance themselves.”

FX markets are likely to trade quietly today.  There are not any notable economic data releases from the US or Canada.

USDCAD Technical Outlook

The intraday USDCAD technicians are bearish while prices are above 1.3280, looking for a decisive break above 1.3330 to target 1.3440.  A move below 1.3280 would extend losses to 1.3205. The Q3 2017 uptrend is intact above 1.2980.  For today, USDCAD support is at 1.3270 and 1.3240.  Resistance is at 1.3310 and 1.3330.  today’s Range 1.3270-1.3330

Chart: USDCAD 30 minute.

Source: Saxo Bank