June 2, 2020
USDCAD Open (6:00 am) 1.3502-06, Overnight Range: 1.3495-1.3584
- US dollar sinking, US cities burn, and risk sentiment is euphoric
- Oil prices rise on hopes for Sept. 1 extension to existing production cut levels
- New German fiscal stimulus plan underpins EURUSD
- Commodity currency bloc continues to roar ahead
Percent change in currency value
Source: Saxo Bank/IFXA
FX Recap and outlook: There is not any shortage of tensions in the world. The Global Council on Foreign Relations identifies five areas having a critical impact on US interests. Two of them deal with China’s exploits in the East and South China Sea. Two more include Islamic militancy in Pakistan and Iran, against the US. The Russia/Crimea dispute is also flagged. Then there is the issue of escalating trade tensions between China and the US, China, and Australia, alongside a political spat between China and Canada. The EU and the US trade talks are ongoing under the threat of US tariffs. EU and UK trade negotiations are another critical issue. Then there is the pandemic.
Travel, tourism, and small businesses have been decimated by government-imposed lockdowns to combat the spread of the virus. Strict adherence to social-distancing and mask-wearing measures have disappeared along with the rise of protests and riots across the US and Canada.
Governments are spending money they don’t have. In Canada, for the past seven weeks, Prime Minister Justine Trudeau has taken a daily stroll to a podium outside his residence where he announces multi-billion dollar spending programs, giving money to every special interest group in the country. So far, he has blown through $240 billion.
The ongoing EU and the US trade talks are under the threat of US tariffs.
Equity traders say “What, me worry?” and buy stocks. FX traders are dumping US dollars and buying so-called risk-assets, which include the commodity currency bloc. However, the steady rise in gold prices since the beginning of March indicates, some traders are a tad concerned.
The US has dropped unopposed for the past few days. Some of the selling was due to month-end portfolio rebalancing pressures, but there haven’t been any specific criteria to justify this week’s sell-off. It seems to be overdone, but picking a bottom for the US dollar in this environment is like catching falling pianos.
EURUSD traded sideways in Asia and the spiked to 1.1187 from 1.1116 in Europe after the German announcement of new fiscal stimulus.
Prices are supported by hopes the proposed €825 billion COVID-19 Relief Fund is passed by the EU, and by bullish technicals targeting a test of 1.1290.
GBPUSD rallied on the back of broad US dollar selling, rising from 1.2480 to 1.2575, before drifting down to 1.2540 in NY trading.
Prices are underpinned by the 1.02% rise in the FTSE 100 index. Gains were capped due to the ongoing EU/UK trade talks and the rising risk of a no-deal Brexit.
Oil prices continued to climb.
USDJPY is trading at the top of its overnight range, on the back of broad US dollar weakness and concerns that the US riots will hamper the post-COVID-19 recovery.
AUDUSD and NZDUSD rallied, with Aussie getting an added boost from the RBA. The RBA left rates and policy unchanged, but the statement was modestly positive. The statement suggested that the economic downturn would be less severe than expected.
Oil prices continued to climb. The Wall Street Journal reported that Opec and Russia were close to agreeing on a production cut extension until September 1.USDCAD dropped due to the widespread US dollar selling, supported by bearish short term technicals, and higher oil prices. Tomorrows Bank of Canada meeting is viewed as a “non-event,” especially since there is not a press conference
USDCAD Technicals: The intraday USDCAD technicals are bearish. The downtrend line from March is intact below 1.3920, and the move below 1.3802 suggests a short term top has been seen. The subsequent breech of support at 1.3600 (the 61.8% Fibonacci retracement of 2020 range) targets the 76.4% level of 1.3345. For today, USDCAD support is at 1.3490 and 1.3410. Resistance is at 1.3550 and 1.3610. Today’s Range 1.3470-1.3550
Chart: USDCAD 4 hour
Source: Saxo Bank