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September 8, 2020

USDCAD Open (6:00 am) 1.3147-78,  Overnight Range 1.3088-1.3144

• UK threatens to reneg on Brexit deal; EU not amused
• Eurozone Q2 GDP better than expected but at -11.8% q/q, still ugly
• US dollar extends Friday’s gains led by GBP plunge

Source: Saxo Bank/IFXA Ltd

FX Recap and outlook:  UK Prime Minister Boris Johnston and company sucker-punched the EU on the weekend.  In  Europe,  GBPUSD  injected some life into what started as a sleepy Monday session due to the US (and Canada) Labour Day holidays.   The British government is reportedly preparing legislation to change the withdrawal agreement on Northern Ireland.  UK Trade Negotiator David Frost said there needs to be “more realism” from the European Union.  EU Chief Negotiator Michel Barnier warned that if the UK changes the withdrawal agreement, the talks will collapse.   Mr Johnson said the withdrawal agreement never made sense.

GBPUSD closed at 1.3281 on Friday and is hit 1.3022 in NY before inching higher.

EURUSD is suffering on the back of the EU/UK trade negotiation rhetoric, although not to the same degree as Sterling.  EURUSD bounced between 1.1779 and 1.1865 last week and is now probing the bottom of that range.  News that Eurozone Q2 GDP fell 11.8% q/q was ignored as traders were content to wait until Thursday’s ECB meeting. They are almost universally expected to be dovish.

Weak Eurozone data including a -0.2% reading in HICP inflation last week and the Fed’s adoption of average inflation targeting policy gave rise to expectations of a similar strategy being announced by policymakers on Thursday.  Traders risk being disappointed as the ECB took aggressive steps in June and President Christine Lagarde said that they had plenty of time to assess incoming data.           

USDJPY is in a modest uptrend inside the 105.00-107.00 range that has contained price action since the middle of August.  The gains are a result of broad US dollar demand and evidence that the recent Japanese repatriation of yen is over.

AUDUSD erased yesterday’s gains after Chinese trade data was better than expected and dropped with the widespread US dollar buying.  NZDUSD struggled with gains capped by expectations for another dovish RBNZ policy meeting on September 22.

Geopolitical tensions are rising, but FX traders are not paying attention.  China and India are trading bullets at their Himalayan border.  China continues to assert itself in the South China Sea while the US sends warships to remind Beijing, that they reject their claims.  Germany is using its support for a Russia pipeline to get Russia President Putin to cooperate in an investigation of the poisoning of a Russian opposition leader.  The EU is dealing with issues in Belarus and between Turkey and Greece. 

USDCAD probed resistance at 1.3160, which held-so far.  Prices are supported by broad US dollar demand a sharp drop in oil prices.  WTI oil fell from $43.40/barrel at the beginning of September to $37.86 today.  The Bank of Canada policy meeting is tomorrow.  There is a risk it could be dovish, following in the footsteps of the last FOMC meeting.

There are not any economic reports of note due today.

USDCAD Technicals:  The intraday technicals are bullish above 1.3070 supported by the break of the minor downtrend line at 1.3110.  A decisive break above 1.3180 will shift the focus to 1.3500.  For today,  USDCAD support is at 1.3110 and 1.3070.  Resistance is at 1.3180 and 1.3210.  Today’s Range 1.3110-1.3210

Chart: USDCAD daily

Source: Saxo Bank