November 7, 2019

USDCAD open 1.3162-66 (6:00 am EST)    Overnight Range 1.3162-1.3195

FX traders are fickle as evidenced by the “risk on, risk off” price action over the past 24 hours.  The net result is that despite the price action, the major G-10 currencies are mostly unchanged today, compared to yesterday’s opening levels.

Roll-back!   Wal-Mart and the US/China Trade negotiators have one thing in common.  Both claim to be rolling back prices.  Chinese officials said both sides agreed to “cancel tariffs in phases,” adding that the magnitude of Phase 1 rollbacks can be negotiated.  “Bazzinga!”  It was standing room only on the “risk-on” bandwagon.  But not for long as the US dollar started recouping some losses in early Toronto trading.

 FX Market Snapshot Daily

Change in currency value against the US dollar from NY close to NY open

The trade news headlines sound pretty good for risk sentiment, but the devil may be in the details-and the White House. China Ministry of Commerce spokesperson Gao Feng said that an important condition for a limited trade agreement was that both sides had to remove the same amount of tariffs at the same time. You may recall that, within weeks of Trump agreeing to the US Mexico Canada Agreement on trade, the President threated to slap new tariffs on Mexico. Another issue is that reportedly, Trump wants to sign a Phase 1 deal inside the US and Xi Jinping isn’t all too eager to accommodate him. 

EURUSD popped on the trade headlines, rising from 1.1056 to 1.1086. European shares joined in the celebration and are at a four-year peak. Traders ignored more weak German data and the European Commission bulletin. The EC repeated the ECB warnings’ about “protracted weakness in the euro area and prominent downside risks.”

The Bank of England (BoE) did as expected and left UK interest rates unchanged at 0.75%. They made minor changes to the 2019 and 2020 growth forecasts.  The 2019 forecast increase while the 2020 forecast decreased.   The result was a wash.  GBPUSD dropped from 1.2875 to 1.2807 after BoE Governor Mark Carney said risks to UK growth were skewed to the downside.

USDJPY dipped as the trade news headlines boosted US Treasury yields and the Nikkei 225, which rose 0.11%. The US 10-year Treasury yields climbed from 1.81% before the headlines to 1.862% in early New York trading.

AUDUSD started firming after news the Australian trade surplus increased to $7.1 billion from $5.9 billion in August, led by a big jump in exports. AUDUSD climbed from 0.6863 to 0.6877 then accelerated to 0.6908, on the China trade story. NZDUSD followed suit.

WTI oil price action has been choppy since yesterday. Prices jumped to $57.78 after the EIA reported a 7.9 million barrel increase in US crude inventories. Talk that a Trump/Xi Jinping meeting to sign a trade deal may not occur until December knocked prices down to $56.17 just before the end of the day. The tariff rollback story lifted prices $57.12 before they eased just before New York opened.

USDCAD is being ignored. Oil price gains are providing a modicum of support, but the Bank of Canada’s shift to a dovish monetary policy outlook is limiting downside movements. USDCAD price action continues to be highly correlated with EURUSD moves, and those moves have been contained to tight ranges as well.

The US Jobless claims data were a touch better than expected at 211,000 (forecast 215,000). There isn’t any Canada data, leaving  Wall Street price action and trade news to  drive FX direction.

 USDCAD Technical View

The intraday USDCAD technicals are unchanged. They are bullish inside a tight trading band bound by the uptrend line from October 28 at 1.3130 and capped by the 200-day moving average at 1.3192. A break either side is good for about 0.0060 points. A break of 1.3120 targets 1.3040. For today, USDCAD support is at 1.3140 and 1.3110. Resistance is 1.3190 and 1.3220. Today’s Range 1.3120-1.3190

Chart: USDCAD 1 day

Source:  Saxo Bank