December 4, 2019

USDCAD open 1.3280-84 (6:00 am EST)    Overnight range 1.3268-1.3296

GBPUSD traded sideways in a 1.2982-1.3002 range in Asia but came to life in Europe. Stop-loss buying occurred above 1.3015 and it continued, touching 1.3102 in New York. There wasn’t a specific catalyst for the move, although there is speculation that rising expectations for a Conservative majority government may have precipitated the buying.  UK Services PMI at 49.3 (forecast 48.6) may have helped the rally.

There is a growing sense that despite President Trump’s occasional inflammatory trade rhetoric, the trade negotiators are edging ever closer to a Phase 1 trade deal and likely before the next US tariff increase takes affect.  A Bloomberg article suggested as much. 

The US dollar opened in New York with modest gains against the G-10 majors but those gains have turned to losses as of 6:00 am PST.

FX Market Snapshot

Change in currency value against the US dollar from NY close to NY  open

Source:  Saxo Bank/IFXA

US/China trade deal rumours unsettled markets overnight.  President Trump’s comments that he was open to delaying an agreement to after the 2020 elections, unsettled traders, especially after the US Senate continues to antagonize China. They passed another bill in favour of sanctioning Chinese officials because of their treatment of Uighur Muslims.   AUDUSD and NZDUSD retreated in Asia but the shift to positive risk sentiment in Europe erased all of the losses.  Australia Q3 GDP was 1.7% q/q, as expected while Services and Composite PMI’s were a tad better than forecast

EURUSD inched higher, rising from 1.1068-1.1105 underpinned by upside surprises to the German and Eurozone PMI reports.  The weaker than expected US ADP employment report exacerbated US dollar selling as the gain of just 67,000 jobs (forecast 140,000) may be a sign of a US economic slowdown.

USDJPY dropped to 108.44 from 108.63 in Asia due to the negative risk sentiment but rallied to 108.78 from the low after the Bloomberg story. A drop in 10-year Treasury yields from 1.845% yesterday to 1.73% in New York, is capping gains.

WTI oil prices are underpinned by chatter that Opec may not only extend production cuts for another three months but lower quotas by 400,000 barrels/day.  Prices have rebounded to $57.11/barrel from $55.10/b yesterday, after API reported a 3.6 million barrel draw-down in US crude inventories.

USDCAD is weighed down by firm oil prices and diminished expectations for the Bank of Canada to cut rates.  US dollar weakness against the majors is exacerbating the pressure and suggesting further losses today.  Analysts expect a somewhat neutral to hawkish Bank of Canada outlook today.

USDCAD Technical View

The intraday USDCAD technicals are undecided.  US dollar bulls are looking for a break of the 1.3330-50 area to extend gains to 1.3440 and then 1.3550.  USD bears are looking for a decisive  break below 1.3270 to target 1.3210 and then 1.3140.  The Bank of Canada may light the way after the policy statement and press conference.  For today, USDCAD support is at 1.3270 and 1.3240.  Resistance is at 1.3305 and 1.3340.  Today’s Range 1.3230-1.3310

Chart:  USDCAD daily

Source: Saxo Bank