January 15, 2020

USDCAD open 1.3070-74 (6:00 am EST)  Overnight Range 1.3058-1.3077

Traders dismissed today’s New York Empire State Manufacturing Index (actual 4.8 vs forecast 3.5) and the December Producer Price Index (actual0.1% vs forecast 0.2%) as the upcoming US/China Phase 1 trade deal details are more important. FX activity is likely to remain understated until around the Washington lunch hour, when the signing ceremony is scheduled.

Overnight, Asia traders were cautious. They didn’t want to get involved until the details of the US/China Phase 1 trade deal are known. Treasury Secretary Steven Mnuchin said that tariffs will remain on Chinese goods until Phase 2 is signed. If so, the impact of the agreement on global growth may be restrained. European traders focused on UK data, heard more dovish comments from Bank of England officials and sold Sterling. However, the gains were not sustained, and GBPUSD bounced into the New York open

The US dollar opened on a mixed note. Aussie led the commodity currency bloc and Sterling lower, lower, while EUR, JPY and CHF inched higher. The US dollar opened in New York on with small gains and inched higher after the inflation data.

 FX Market Snapshot

Change in currency value against the US dollar NY close to NY open (6:00 am EST)

A screenshot of a cell phone

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Source: Saxo Bank/IFXA

GBPUSD dropped from 1.3041 just as Europe opened to 1.2986 after UK economic data was worse than expected. December CPI rose 1.3% y/y compared to 1.5% y/y in November while Core CPI rose 1.4% y/y, well below the 1.7% expected. PPI and Retail Price Index reports were also soft. Prices were already slipping following more dovish-speak from Bank of England officials. Policymaker Michael Saunders said “It probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2% inflation target. However, the bearish GBPUSD sentiment evaporated in early New York trading. The break above 1.3015 shifted the short term technicals to bullish and targeted a retest of 1.3125.

EURUSD tracked GBPUSD moves. Euro traders, like the rest of the FX markets, are nervous ahead of the Phase 1 US/China trade deal signing ceremony, which is expected around noon hour in Washington. There is concern that any global trade benefits will be eroded because many of the existing tariffs will stay in place. EURUSD suffered earlier after German real GDP growth in 2019 was only 0.6% y/y, compared to 1.5% in 2018. However, the German Statistics office pointed out that it was the tenth year of expansion. EURUSD traders ignored soft Trade and Industrial Production data and took the single currency from its overnight low of 1.1120 to 1.1153 in early New York trading. The short term technicals turned bullish with the break above 1.1120, looking for gains above 1.1165 to target 1.1250.

USDJPY stagnated in a 110.83-110.01 range overnight. Traders are undecided. USDJPY is in demand due to optimism about the Phase 1 trade deal while sellers emerge because of falling US Treasury yields. The intraday technicals are bullish while prices are above 109.80, but upside momentum has stalled at 110.10.

AUDUSD and NZDUSD are suffering due to some scepticism around the Phase 1 trade deal. Traders are worried that the failure to remove tariffs on Chinese imports will be negatively impact Australia’s growth prospects. AUDUSD is also suffering a string of soft economic reports since the beginning of the year and the RBA’s dovish bias.

The post-Iran/US WTI oil price slide appears to have found a bottom at $57.70, which is also the uptrend line from September 30. The API reported that US crude inventories rose 1.1 million barrels which weighed on prices overnight. The OPEC Monthly oil report is due this afternoon.

FX markets are likely to remain sidelined until after lunch when the Phase 1 deal is signed, and details become available. The concern is by keeping most existing US tariffs in place, it diminishes, the benefits to global growth.

USDCAD is drifting with a bullish bias. The currency pair is bolstered by a dovish outlook for next week’s Bank of Canada policy meeting as well as concerns about the impact of the Phase 1 deal on global growth. The intraday USDCAD technicals are bullish while prices are above 1.3050, but upside momentum has stalled at 1.3105. Prices are likely to remain directionless until after more of the trade agreement details are released. For today. USDCAD support is at 1.3050 and 1.3005. Resistance is at 1.3105 and 1.3150. Today’s Range 1.3010-1.3110

Chart; USDCAD 30 minute

Source:  Saxo Bank