April 30, 2020
USDCAD open (6:00 am EST) 1.3864-68 Overnight Range 1.3853-1.3897
- US Jobless claims higher than forecast, Canadian data ignored
- ECB leaves rates unchanged but tweaks policy
- China data gives commodity currencies a boost
- Fed outlook rather bleak
- Oil prices rise on hope and a prayer
- US dollar poised to close the month with losses against G-10 majors except EUR and CHF
Chart: Change in currency value against US dollar since NY open, April 1,
Source: Saxo Bank/IFXA
FX Recap and outlook: There wasn’t any shortage of economic data today, but none of it really mattered. US jobless Claims rose 5.03 million compared to expectations for a gain of 3.5 million. Canada’s Raw Material Price index at -15.6 was well below expectations for a -13.6 decline. February GDP was flat, but pre-COVID and totally ignored.
April is almost over, and it has been a good month for Wall Street bulls. The S&P 500 index is up 18% from its April 1 low. The same cannot be said for most US dollar bulls. The Australian dollar soared 7.9% since opening in New York on April 1. The NZD, CAD, JPY, and GDP gains were far less impressive but still better than CHF and EUR which were modestly lower.
The positive risk sentiment permeating Equity and FX markets didn’t penetrate the walls of the Federal Reserve. The monetary policy statement and press conference opening remarks were somewhat despondent.
Fed Chair Jerome Powell said: “Millions of workers are losing their jobs. Next week’s jobs report is expected to show that the unemployment rate, which was at 50-year lows just two months ago, has surged into double-digits. Household spending has plummeted as people stay home, and measures of consumer sentiment have fallen precipitously.”
Mr Powell also reminded markets of the limitations of monetary policy saying “lowering interest rates cannot stop the sharp drop in economic activity caused by closures and other forms of social distancing. And low rates will not effectively spur the economy if those rates do not feed through to broader financial conditions or if households and businesses are unable to get credit.”
The FOMC statement and press conference cannot be described as being “upbeat” but since the Fed left policy unchanged, the “risk-on” sentiment prevailed.
That sentiment continued in Asia spurred by improving China PMI data and the easing of COVID-19 travel restrictions. China begins a 5 day national holiday on May 1 and 117 million people are expected to hit the road.
EURUSD shrugged of a slew of weak economic data reports including a 3.3% drop in Q1 GDP y/y and news the German unemployment rate jumped to 5.8% from 5.0% in March. Traders are awaiting this mornings ECB rate decision and press conference. The ECB left rates unchanged but tweaked the Targeted Long Term Refinancing Operations (TLTRO lll). EURUSD drifted in a 1.0853-90 range.
GBPUSD traded with a bullish bias, rising from 1.2430 to 1.2527, which is likely because of month end US dollar selling pressures.
WTI oil prices are trading at $17.48/barrel, a 74.0% gain since Tuesday. Yesterday’s smaller than expected increase in US crude inventories underpinned prices. Traders are hoping that the easing of travel restrictions and the Opec/Russia production cuts that start tomorrow, will sop up the glut of crude, which has depressed prices.
USDCAD rode the “risk-on” wave. Prices plunged with the crude rally, and the drop was exacerbated by month-end USDCAD sales. However, the gains are unlikely to be sustained. Oil prices are still well-below the breakeven price for most Canadian producers. The expected economic rebound from an easing of COVID-19 restrictions is a long way off. In addition, month-end selling pressures will disappear quickly.
USDCAD technical outlook:
The intraday USDCAD technicals are bearish below 1.3960 looking for a break of 1.3850 to extend losses to 1.3860 and then 1.3760. The longer term technicals warn that the USDCAD decline is becoming overdone and vulnerable to a rally to 1.4060 in the coming days. For today, USDCAD support is at 1.3860 and 1.3810. Resistance is at 1.3940 and 1.3990. Today’s Range 1.3820-1.3920
Chart: USDCAD 4 hour
Source: Saxo Bank