June 17, 2020

USDCAD Open (6:00 am) 1.3543-47, Overnight Range: 1.3514-70

• US data turns up equity heat; Fed’s Powell blows cold
• Beijing reports new COVID-19 cases for 6th day in a row
• Canada May CPI rise 0.3%m/m (forecast 0.7%
• US dollar inches higher accept against CHF

Percent change in US dollar since Thursday’s NY open

Source: Saxo Bank/IFXA

FX Recap and outlook:  US economic data and Fed Chair Jerome Powell offer opposing views of the economy.  Equity traders are tracking the data, while FX traders follow Powell.  Equity traders see the recent blow-out US nonfarm payrolls report, and yesterday’s better-than-expected Retail Sales data as evidence of for robust economic rebound, and buy stocks.

FX traders are listening to Mr Powell.  He repeated his dovish comments from the FOMC meeting to Congress yesterday saying that despite some indicators pointing to stabilization, “the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.”  Fed Vice Chair Richard Clarida echoed Powell’s sentiments in a speech in NY.  Both officials expressed concern about the path of the COVID-19 outbreak.

FX traders drifted into risk-averse trades after China reported new coronavirus outbreaks in Beijing for the 6th day in a row.  Closer to home, Arizona, Florida, Oklahoma, Oregon, and Texas reported the most ever new cases on Tuesday, which comes on the heels of last week’s all-time highs.

EURUSD traded quietly until mid-morning in Europe, when it dropped from 1.1293 to 1.1225, in early NY trading.  Eurozone inflation data did not have any impact on prices.  May CPI fell 0.1%, as expected.  Trader’s ignored small gains in equity markets and focused on concerns about a second wave COVID-19 outbreak.

GBPUSD traded in a relatively calm 1.2525-1.2587 range.  Traders have gotten over their disappointment after the EU and UK did not extend the Brexit transition period. UK CPI, PPI, and Retail Price Index data were weak, but not an issue. Instead, prices traded with broad US dollar sentiment.

Equity traders are tracking the data, while FX traders follow Powell.

USDJPY bottomed out in Asia, touching 107.18 and then rallied to 107.43, in part due to a bounce in US Treasury yields and higher equity prices.   10-year Treasury yields climbed to 0.759% from 0.728%.

AUDUSD and NZDUSD are just above the middle of their overnight ranges.  Price action is torn between demand from rising equity markets and selling pressure on renewed COVID-19 outbreak concerns.

Oil prices consolidate recent gains.  Prices are underpinned by hopes for a rebound in demand in Q2 and expectations that supply pressures will ease.

USDCAD opened little changed from yesterday’s close.  USDCAD was weighed down by steady to firm crude oil prices and comments from Bank of Canada Governor Tiff Macklem.  The Governor seemed to have a more optimistic outlook for the domestic economy.  He told the House of Commons Finance committee that the BoC expects “economic growth to resume in the third quarter.”

Statistics Canada said “The Consumer Price Index (CPI) fell 0.4% on a year-over-year basis in May, down from a 0.2% decline in April. Excluding gasoline, the CPI rose 0.7%, the smallest increase since January 2013.”    FX traders ignored the news.

Fed Chair Jerome Powell returns to the Senate for Day 2 of his testimony. The data and the speech should not have an impact on FX.

USDCAD Technicals:  The intraday USDCAD technicals are unchanged from yesterday.  They are bearish below 1.3580, looking for a break below 1.3510 to extend losses to 1.3460.  Longer term, USDCAD is consolidating in a 1.3350-1.3890 range.  The top represents the downtrend from mid-March, while the bottom is the uptrend from January.   For today, USDCAD support is at 1.3510 and 1.3470.  Resistance is at 1.3570 and 1.3620. Today’s Range 1.3470-1.3560

Chart: USDCAD 4 hour

Source:  Saxo Bank