May  29, 2019

USDCAD Open (6:00 am EDT) 1.3509-12   Overnight Range  1.3454-1.3520

USDCAD tested major resistance at 1.3520 in early New York trading.  It held, but the retreat is shallow.  Prices climbed steadily alongside broad US dollar demand from renewed risk aversion trades.  It may not get a reprieve from the Bank of Canada policy meeting today.  The prevailing sentiment is that the BoC will leave interest rates unchanged, and issue a tame statement that echoes the previous one.  The RBA and RBNZ are cutting rates, and the rest of the G-10 central banks have easy monetary policies in place.  The BoC was late to the party and only shifted to “neutral” April 24.  They were concerned about increasing global trade risks then, and those risks have worsened. However, there is a risk, that the statement could have a forward-looking, upbeat tone considering the recent robust employment and GDP reports and the repeal of US tariffs on Canadian steel and aluminum.  If so, USDCAD may revisit the bottom of its 1.3370-1.3520 range

Rare earth minerals could become rare for US companies, according to the editor of a state-run Chinese newspaper. China is the source of 80% of US rare earth imports, which are critical components in electronics, glass, oil and renewable energy industries.  Such a move would have a short-term negative impact on the US economy.

Asia FX traders weren’t as perturbed about the rare earth story as equity traders.  Equity indices were down, led by a 1.2% drop in the Nikkei.  The Nikkei’s woes had a lot to do with falling Treasury yields which sank USDJPY. AUDUSD and NZDUSD were steady until Europe opened and then prices dropped.

EURUSD added to yesterday’s losses during the European session.  Prices were weighed down by Italy budget concerns, potential Brexit risks, safe haven selling of EURJPY and a weaker than expected German unemployment report.  EURUSD fell from 1.1171 to 1.1152 where they opened in New York.

GBPUSD continues to be undermined by UK politics.  The race to replace Theresa May keeps the focus on a “no-deal” Brexit which undermines the currency pair.   A break below 1.2620 targets 1.2480 

Oil traders appear to have capitulated to the view that a global economic slowdown from a prolonged US/China trade war will have a more significant impact on prices than if Opec leaves production cuts in place for the balance of the year.  WTI plunged 2.1% overnight, falling from $59.07/barrel at yesterday’s close to $57.84/b at today’s open.

USDCAD Technicals

The intraday techincals are bullish following the break of resistance at 1.3480 and are looking for major resistance in the 1.3520-30 zone to crumble, extending gains to 1.3660 and then 1.3790.  If 1.3520 caps the upside, a break below 1.3460 will elad to more 1.3370-1.3520 consolidation.  For today, USDCAD support is at 1.3480 and 1.3440.  Resistance is at 1.3520 and 1.3580  Today’s Range 1.3460-1.3520

Chart: USDCAD  1 day