Blame Italy.  UK traders returned from a long weekend and got their knickers in a knot over political developments in Italy, or more accurately, the lack of political developments in Italy.  Italy’s President Sergio Mattarella’s rejected the pending new coalition government’s choice for Economics Minister. That move essentially vetoed the 5 Star Movement/League’s attempt to form a government.  He named an interim Prime Minister, Carlo Cottarelli, a pro-Euro, pro-austerity guy. Traders have concluded that Italy will have new elections in September and turn them into a referendum on the euro.

EURUSD dropped from 1.1638 to 1.1511 before bouncing to 1.1560 in early New York trading. Just two weeks ago, EURUSD looked like it would crack 1.2000 again.

USDJPY fell to 108.44 from 109.45 in a risk-aversion fueled decline that was further exacerbated by a drop in US Treasury yields. US 10-year yields are trading at 2.866%.

Sterling tracked EURUSD moves lower.  GBPUSD sank to 1.3206 from 1.3324

The sharp FX moves occurred during a top-tier data drought.  Traders were looking for something to provide direction, and the Italian news fits the bill. They over-looked positive developments about the US/North Korea summit, which may be “un-cancelled.”

The antipodean currencies came under pressure with the broad US dollar demand but merely traded lower inside well-defined ranges.

USDCAD rallied on the back of free-falling oil prices.  WTI oil prices were trading at  $72.85/barrel on May 22.  This morning they are $66.85.  Reports suggest  Russia and Saudi Arabia may announce a production increase at the  June 22, Opec meeting and a jump in weekly US crude inventories sent prices tumbling.

The bad news keeps on coming.  President Trump is threatening a 25% tariff on all car imports to the US which doesn’t bode well for a successful Nafta negotiation.  Wednesday, the Bank of Canada is expected to leave interest rates on hold.  With the Nafta talks under threat, the statement may be dovish which would support USDCAD.

CP Rail union has served a strike notice as of May 29 which will disrupt freight traffic throughout Canada.  A prolonged work stoppage would have an adverse effect on GDP. Even worse, Canada’s largest province, Ontario is going to the polls on June 7.  Ontario has the dubious distinction of being the largest indebted sub-sovereign borrower in the world. It owes $312 billion, and that number is going to get bigger after the June 7 election.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish while trading above 1.2970  with the overnight break above 1.3020 hanging a target on the 2018 peak of 1.3125. The uptrend from the middle of April is intact while prices are above 1.2800.  For today, USDCAD support is at 1.3010 and 1.2970.  Resistance is at 1.3080 and 1.3125.

Today’s Range 1.2990-1.3080