May 5, 2020

USDCAD open (6:00 am EST) 1.4060-64    Overnight Range 1.4021-1.4093

  • EURUSD sinks after German court demands ECB clarify Public Sector Purchase Program
  • Canadian dollar ignores soft domestic trade report
  • Oil prices surge as production cuts begin
  • US dollar opens slightly higher, except against commodity currency bloc

Percent change in Currency value against US dollar, NY close (5:00 pm EDT) to NY open (6:00 am EDT)

 Source: Saxo Bank/IFXA

FX Recap and outlook:  EURUSD took it on the chin after the German Constitutional court ruled against the Bundesbank’s participation in the ECB’s Public Sector Purchase Program (PSPP). The court said the Bundesbank could not participate in QE unless ” the ECB Governing Council adopts a new decision that demonstrates…the PSPP are not disproportionate to the economic and fiscal policy effects.”The EU dismissed the ruling saying EU law has primacy over national laws.

EURUSD bounced between 1.0890 and 1.0925, when the ruling was released, then dropped to 1.0827 on concerns about the ruling on the ECB’s independence, and the re-emergence of national interests superseding EU authority.

GBPUSD dropped alongside the drop in EURUSD, falling from 1.2483 to 1.2422, before rebounding to 1.2450 in early NY trading. GBPUSD got a little support from better than expected April Services PMI data which rose to 13.4 from 12.3 previously.

USDJPY dropped on the back of EURJPY selling but remained above its overnight low of 106.52. A bounce in US Treasury yields modestly supported prices. 10-year Treasury yields climbed from 0.60% to 0.68%.

AUDUSD gave back all of yesterday’s gains, dropping from 0.6461 to 0.6419 following the broad US dollar gains, post-German court ruling. 

The RBA left rates unchanged and predicted the domestic economy would decline 6% in 202 before rebounding in 2021, which was expected. NZDUSD mirrored AUDUSD price action.

Oil prices extended yesterday’s rally with WTI climbing to $22.75/barrel from $21.15/b. Prices are supported by the onset of Opec’s 10 million BPD production cuts that began May 1. UBS analysts predicted the oil glut would be sopped up by Q4, as demand outstripped supply.

USDCAD bounced in tandem with broad US dollar moves, but the bounce in crude prices limited gains. Bank of Canada Deputy Governor Carolyn Wilkins said yesterday that the latest BoC monetary policy stimulus actions align with their inflation mandate “because they are helping to lessen financial hardship today and paving the way to a sustainable recovery.”

Today’s US data ISM Non-manufacturing PMI data for April (forecast 36.8 compared to 52.5 in March) should not have much impact on FX trading as weak data is expected due to coronavirus containment measures. Canadian trade data will also be ignored.

USDCAD technical outlook:

 The intraday USDCAD technicals are bearish while trading below 1.4090.  A decisive break of support at 1.4005 targets additional losses to 1.3850.  A break above 1.4090 targets 1.4150 and then 1.4210.  For today, USDCAD support is at 1.4030 and 1.3990.  Resistance is at 1.4090 and 1.4150. Today’s Range 1.3990-1.4090

Chart: USDCAD 1 hour

Source: Saxo Bank