Overnight Range 1.3114-1.3138        

FX markets were abnormally quiet overnight. Traders seemed unwilling to stray too far from home ahead of Thursday afternoon’s FOMC policy statement and updated projections.

AUDUSD edged higher in early trading but mixed domestic data capped the rally at 0.7510. Traders ignored strong China data (Retail Sales 10.8% vs. forecast 10.1%) and AUDUSD opened in New York at 0.7475. Kiwi was trapped within a narrow 0.7178-0.7203 range.

USDJPY opened in Asia at 114.75 and rose steadily to 115.40 by the New York open with traders jockeying for position ahead of the Fed meeting.

There were a lot of economic data releases across the Eurozone but coming so close on the heels of last week’s ECB meeting diminished their impact.

Germany’s Harmonized Index of Consumer Prices (HICP) data came out “as expected” while the ZEW Survey was mixed. However, the Eurozone ZEW Economic survey beat expectations and rose to 18.1 from 16.5.  Still, the focus is on the Fed and EURUSD slid down to 1.0613 from 1.0650.

It was a different story in the UK.  There, the data did matter. GBPUSD rose from 1.2659 to 1.2725 supported by rising inflation.  UK CPI rose 1.2% y/y in November which wasn’t totally unexpected due to the decline in the pound since the referendum in June.

Oil prices have recovered from yesterday’s lows and are now trading at $53.10 which is still well below yesterday’s $54.45 peak. The International energy Agency (IEA) said that  “If OPEC promptly and fully sticks to its production target, assessed at 32.7 mb/d, and non-OPEC producers deliver the agreed cuts of 558 kb/d outlined on 10 December, then the market is likely to move into deficit in the first half of 2017 by an estimated 0.6 mb/d.” Source IEA Monthly Report 

The Canadian dollar barely budged overnight.  Bullish Canadian dollar sentiment from rising oil prices is being offset by bearish Canadian dollar prospects from rising USD interest rates and a risk of trade disputes.

This morning’s release of US Import/Export data shouldn’t do much to jump-start FX markets leaving traders to twiddle their thumbs and book holiday lunches.  The positive outlook for oil prices in 2017 should limit USDCAD gains, at least until the FOMC statement tomorrow.

USDCAD Technical outlook

The intraday USDCAD technicals are bearish.  The downtrend from 1.3535 at the end of November remains intact while prices are below 1.3195. There is strong support in the 1.3070-90 area from the uptrend line from May 2016 and the 200-day moving average.  A move below this area would target 1.3020, the 50% Fibonacci retracement level of the May-November range.  The 61.8% Fibonacci retracement level is 1.2888.  Only a recovery above 1.3260 would negate the downward pressure.

Today’s Range 1.3070-1.3150

Chart: USDCAD 4 hour