There is a chill in the air, and it isn’t just the temperature. Yesterday’s IMF World Economic Outlook downgraded their growth outlook for the Eurozone blaming new fuel emission standards in Germany and weakening financial market sentiment. They noted that risks were to the downside due to a fear of an escalation in trade tensions beyond those that already exist. A “no-Deal” Brexit and a greater than envisioned slowdown for China were other key downside risks.
Risk aversion sentiment was evident in FX markets. The Japanese yen and Swiss franc were higher, albeit marginally. The commodity currency block lost ground led by a drop in AUDUSD. EURUSD opened flat while GBPUSD is higher on Brexit news.
GBP
Sterling rallied, supported by news that the UK parliament would vote on and an amended Brexit plan, on January 29. Calls for a second referendum are getting louder, but that option is opposed by the Prime Minister saying it would threaten “social cohesion.” GBPUSD climbed from 1.2857 to 1.2926, with an assist from better than expected UK employment data.
EUR
EURUSD struggled in a narrow 1.1347-1.1372 range weighed down by EURGBP selling and a still soft German ZEW Survey.
OIL
The IMF report and generally negative risk sentiment dropped WTI oil prices for a 1.9% loss overnight. WTI fell from $53.94 to $52.93/barrel by the time New York opened. Asia and European equity indices are in the red and US equity futures point to a negative open on Wall Street.
CAD
The drop in oil prices and broad commodity currency weakness lifted USDCAD from 1.3295 at yesterday’s close to 1.3341 in early European trading. The Loonie is also undermined by a Globe and Mail Story saying that the US is proceeding with a formal extradition request for the Huawei CFO.
Canada Manufacturing shipments and Wholesale Sales data for November are released this morning. US Existing Home Sales are on tap. The World Economic Forum in Davos is ongoing, and on a slow news day, headlines from there could cause some volatility
The intraday USDCAD technicals are bullish while prices are above 1.3250 with the break of 1.3315 overnight setting the stage for further gains to 1.3370. If 1.3370 caps the rally, additional 1.3170-1.3370 consolidation is likely. A decisive break above 1.3370 opens the door to 1.3430 and then 1.3620. For today, USDCAD support is at 1.3310 and 1.3250. Resistance is at 1.3340 (overnight high) 1.3370 and 1.3420. Today’s Range 1.3290-1.3370
