March 2, 2020

USDCAD open (6:00 am EST) 1.3350-54     Overnight Range 1.3317-1.3438

Do you hear the bugle?  That’s the sound of the G-7 calvary charge coming to rescue besieged financial markets.  At least, that’s what traders think they hear.  Fed Chair Jerome Powell raised speculation for a rare, intra-meeting Fed rate cut he issued the following press release: “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”

Today, French Finance Minister Bruno LeMaire told a TV network that “There will be a concerted action. Yesterday I spoke with the G7 president, the U.S. Treasury Secretary Steven Mnuchin, and this week we will have a meeting by phone of the finance G7 ministers to coordinate our responses.”

Who knew that the cure to COVID-19 was simply a quarter-point interest rate cut?  Asia equity markets dipped then rallied and closed with gains.  European traders were a tad more skeptical, and the major indexes, are lower, except for the UK FTSE 100. Oil prices sank, soared, and then retreated, while gold prices inched higher.

The prospect of coordinated G-7 interest rate cuts, knocked the greenback from its coronavirus perch.  It fell against the major G-10 currencies, except GBPUSD, which slipped.

 Chart: Currency gain/loss (%) against the US dollar from  NY close to NY open (6:00 EST)

Source: Saxo Bank/IFXA

FX Recap and outlook:  EURUSD rallied hard, rising from 1.1020 to 1.1120, and fully reversing its February-coronavirus losses. Slightly better German and Eurozone February Manufacturing PMI results added support to US rate cut speculation but plunging US 10-year US Treasury yields were the main accelerant.  They dropped from 1.16% on Friday to 1.04% today, which fueled the rally.    EURUSD gains may be limited.  The OECD slashed their forecast for G-20  growth from 2.9% to 2.4% due to the COVID-19 outbreak and warned it could drop to 1.5% if it becomes a pandemic. Geopolitical concerns stemming from Turkey/ Syria and Russia hostilities and Turkey’s decision to help flood Europe with refugees is another EURUSD negative.  The intraday uptrend is intact while prices are above 1.1060, with a break of 1.1105 extending gains to 1.1160.

GBPUSD did not benefit from broad US dollar selling pressures.  Instead, modestly weaker February PMI data (actual 51.7 vs January 51.9) and the official start to the EU/UK trade talks.  The EU wants a broad agreement covering foreign policy, fish, trade, services, and security cooperation.  Britain wats a Canada style free-trade deal which doesn’t include EU oversight.

USDJPY gapped lower at the Asia open.  It closed Friday at 108.10, opened at 107.50 and sank to 107.02.  Prices rebounded on US rate cut speculation touching 108.57 before retreating to 107.72 in early New York trading, in part because NY equity futures gave back earlier gains, pointing to a negative open on Wall Street.

AUDUSD and NZDUSD rode a bit of a roller-coaster.

Prices dipped, climbed and then dipped again as they tracked broad US dollar movements. The sharply weaker than forecast China Manufacturing PMI data and speculation of rates cuts by RBA and RBNZ limited gains.

Oil prices bounced from overnight lows.  WTI oil touched $43.50/b before climbing to $46.88 in Europe on hopes that Opec will agree to Saudi Arabia’s call for an additional 1.0 million barrel/day production cut. Prices moved lower and are trading at $45.05/ in New York.

USDCAD is mirroring EURUSD moves.  EURUSD punched above resistance at 1.1105 when early NY traders joined the G-7 rate cut speculation party. USDCAD dropped from 1.3455, Friday to 1.3318 this morning, and then bounced to 1.3372. Domestic concerns such as increased risks that the Bank of Canada cuts interest rates by 0.25% on Wednesday, and elevated risk of a domestic economic slowdown due to low oil prices and COVID19, are being ignored.  Instead, hopes that a G-7 coordinated interest rate cut is driving sentiment.

US ISM Manufacturing PMI data and Wall Street price action will dictate FX direction today.

USDCAD Technical Outlook

The USDCAD technicals are bullish while prices are above 1.3260 which is being guarded by support at 1.3310.  Prices continue to consolidate gains following the break above 1.3360 and while they are above this level, they keep the door open to further gains to 1.3550. For today, USDCAD support is at 1.3360and 1.3310.  Resistance is at 1.3410 and 1.3460. Today’s range 1.3320-1.3420

Chart: USDCAD  4 hour

Source: Saxo Bank