Photo: Wikimedia Commons

December 16, 2020

USDCAD open (6:00 am ET) 1.2748-52,  Overnight Range 1.2699-1.2762

  • Canada Headline and Core CPI higher than expected
  • GBPUSD soars as odds for Brexit deal top 75%
  • US dollar slides ahead of FOMC meeting

FX Ranges at a Glance:  

Source: IFXA Ltd/RP

FX Recap and Outlook:  Life is good!  At least that is what FX traders believe (today), as they rush into the so-called “risk-assets.” The US dollar opened in NY with losses all around, except against the Canadian dollar.

 USDCAD is an enigma.

The major G-10 currencies rallied against the US dollar overnight, but not USDCAD.  It was the only currency pair to lose ground, shedding 0.41%.  It is extremely rare for the currency pair to dance to its own tune.  That suggests EURCAD, and GBPCAD demand, and CADJPY selling. It could also mean that a chunky FX order to buy USDCAD is being worked which is not unheard of at year-end. Or it could be a combination of all of the above.

USDCAD dipped modestly, falling from 1.2762 to 1.2745, after better than expected inflation data. Statistics Canada said “Year over year, the Consumer Price Index (CPI) rose at a faster pace in November (+1.0%) than in October (+0.7%).  Excluding gasoline, the CPI rose 1.3% in November, up from a 1.0% increase in October.”

US Retail Sales dropped 1.1% m/m in November, worse than forecast but not unexpected due to the sure in COVID-19 cases in the month.

It was a “risk-on” session overnight.  Gold prices climbed 0.52%, while crude prices are marginally higher.  The major Asian equity indexes closed with gains and the German DAX index, has risen 1.4%, leading European bourses higher. Wall Street is poised to open in positive territory.

US Senate Majority Leader Mitch McConnell met with House Speaker Nancy Pelosi yesterday to talk COVID-19 Relief package.  Mr McConnell said, “We’re making significant progress, and I’m optimistic that we’re gonna be able to complete an understanding sometime soon.” That, and other comments like it, propelled risk sentiment higher.

The FOMC will release new economic projections and is expected to provide some clarity around its asset purchase program.

Brexit, Brexit, Brexit.

UK bookies are quoting “4-1 on”, meaning Bet four quid and you win one (plus your bet)  GBPUSD traders are betting big as well.  They have boosted GBPUSD to 1.3520 today, from 1.3137 last Friday, a 3.0% gain.  The overnight gains were sparked by positive comments from various officials, including EU Commission President Ursula von der Leyden.   She told the EU Parliament “I can not tell you whether there will be a deal or not but I can tell you there is a path to an agreement now. The path may be very narrow, but it is there,” as per the UK Independent.  Traders ignored weaker than expected UK CPI and Retail Price data.

EURUSD cracked above 1.2200, a level last seen in April 2018.  The rally was fueled by broad-based US dollar selling from “risk-on” sentiment, expectations for another dovish FOMC meeting,  and better than expected Markit PMI data from Germany and the Eurozone. Eurozone Manufacturing PMI was 55.5 (forecast 53), and German Manufacturing PMI jumped to 58.6 from 57.8 in November.  The chief economist at Markit said that “the data hint at the economy close to stabilising after having plunged back into a severe decline in November amid renewed Covid-19 lockdown measures.”

USDJPY dropped to 103.27 from 103.71, in part because JPY is in demand due to Japan and US real interest rate differentials.

AUDUSD and NZDUSD rode the risk rally wave and got an added boost from a jump in commodity prices. AUDUSD got an added lift from better than expected Commonwealth Bank Manufacturing PMI.

Oil prices are steady and relatively firm. Traders are cautious ahead of expected increased supply in January when Opec increases production.  Production is also rising in Norway, and the US, while Iran has managed to by-pass sanctions and increase crude shipments.

USDCAD Technicals:   The intraday USDCAD technicals are bearish below 1.2750-60, which if it holds, suggests the rally from 1.2697 is merely a correction.  A topside break suggests a retest of resistance in the 1.2820 area.  Longer term, Fibonacci retracement analysis suggests the break below 1.3030 will lead to a test of support at 1.2660.  For today, USDCAD support is at 1.2690 and 1.2660.  Resistance is at 1.2760 and 1.2790. Today’s Range 1.2690-1.2760

Chart: USDCAD 4 hour  

 Source:  Saxo Bank

FX open (6:00 am EDT) High, Low, and previous close

Source:  Saxo Bank