October 10, 2019
USDCAD open 1.3302-05 (6:00 am EDT) Overnight Range 1.3302-1.3344
FX traders are dancing in the streets. Well, maybe not, but they are shuffling their feet and feeling the groove of the trade talk beat. The US dollar gave back yesterday’s gains and opened in New York with losses across the G-10 major currency spectrum, undermined by stale, but somewhat dovish FOMC minutes.
FX Market Snapshot
Change in currency value against the US dollar from New York close to New York open
The FOMC minutes did not offer any new insight that would dampen expectations for another rate cut on October 30. Participants said their economic outlook was premised on a somewhat more accommodative path for policy than in July. They also said they had become “more concerned with risks associated with trade tensions and adverse developments in the geopolitical and global economic spheres.”
US September inflation data at 1.7% y/y, was a tick below forecast while Core inflation was unchanged at 2.4%. The report shouldn’t change the sentiment for a Fed rate cut.
EURUSD caught a bid after the minutes were released and climbed steadily, rising from 1.0972 to 1.1032 in early New York trading today. Traders ignored weaker than expected German trade data, preferring to remain hopeful for positive US/China trade talks news.
They could be waiting for a long time. The American’s do not appear to be bargaining in “good faith” judging by the recent “black-listing” of Chinese companies and individuals, plans for raising tariffs on Chinese goods on October 15. The South China Morning Post reported that the Deputy-level talks did not make any progress. There are rumours that China could end the talks earlier than expected. More positive stories suggest China and the US would agree to a currency pact, and there are reports that a partial-deal will be announced. That makes sense as it would help Trump deflect some of the impeachment noise.
USDJPY opened at 107.41 after bouncing in a 107.04-107.76 range, Conflicting US/China trade rumours, dovish FOMC minutes and choppy US Treasury yields fueled the price action.
Turkey’s offensive against Kurds (who are US allies against ISIS) has the potential to go pear-shaped. If so, it would lead to renewed safe have demand for yen and Swiss francs.
GBPUSD is trading near the top of its 1.2209-1.2254 range on the back of the broad US dollar weakness. Traders ignored a string of soft economic data, including a 0.1% decline in GDP in August. Industrial Production and Manufacturing production missed forecasts. Prices appear to be resilient despite the rising risk of a no-deal Brexit.
AUDUSD and NZDUSD traded higher, underpinned by hopes for some semblance of a US/China trade deal being announced. Modestly better than expected NZ and Australian economic data provided additional support.
WTI oil prices dropped from $52.70 to $51.40/b on Wednesday after the EIA reported a rise in crude inventories. Broad US dollar weakness and US/China trade talks news lifted prices to $52.50 by the New York open.
USDCAD is tracking EURUSD moves. A slight shift into “risk-seeking” trades on hopes of a trade deal, is undermining prices. Friday’s Canadian employment report may get extra scrutiny if there is an upside surprise in employment. The forecast is for 10,000 (compared to 81,000) in August. A larger than expected gain would provide the Bank of Canada with more incentive to leave domestic interest rates unchanged.
US inflation data is due today. September CPI is expected to rise 1.8% y/y while core CPI stays unchanged at 2.4%.
USDCAD TECHNICAL VIEW
The intraday USDCAD technicals are modestly bearish after rejecting gains above 1.3340 and subsequently dropping below 1.3220. A break of support in the 1.3290-1.3305 area opens the door to further losses to 1.3240 and then 1.3180. Failure to break below 1.3295 suggests another visit to the 1.3340-50 zone. For today, USDCAD support is 1.3290 and 1.3240. Resistance is 1.3330 and 1.3360. Today’s Range 1.3270-1.3340
Chart: USDCAD 4 hour
Source: Saxo Bank