USDCAD opened at the bottom end of its overnight range, ignoring negative developments on the Nafta front. Yesterday, President Trump and Mexico announced a bilateral trade deal. President Trump said that Nafta would be terminated and was ambivalent as to whether a new deal would even include Canada. The US and Mexico agreed to a 16-year sunset clause, and auto content. Both were major issues for Canada.
President Trump also implied that Canada should just sign the same agreement as Mexico. He said “We will see whether or not we decide to put up Canada or just do a separate deal with Canada, if they want to make the deal. The simplest deal is more or less already made. It would be very easy to do and execute.” He added “But one way or the other, we have a deal with Canada. It will either be a tariff on cars, or it will be a negotiated deal. And, frankly, a tariff on cars is a much easier way to go.”
Canada is in the unenviable position of a “take it or leave it” deal. The US/Mexico deal does not need Canada’s participation. Whatever deal Canada signs, if they even sign one, will put Canada in a worse trade position than what it had before.
However, FX traders didn’t seem to care. They sold USDCAD on the news. Part of the US dollar selling pressure can be attributed to broad US dollar weakness. The US/Mexico deal helped improve the general risk tone in global markets, aided by a lack of negative China trade headlines and the PBoC’s action to keep USDCNY below 7.00. Fed Chair Powell’s speech last Friday, contributed to the positive sentiment. Wall Street closed sharply higher. Asia equity indices closed with gains and European bourses are flat to positive, and US equities are poised to open firmer today.
The US dollar selling pressure continued overnight. There wasn’t any notable economic data. EURUSD is probing the 1.1700 area with strong resistance noted in the 1.1725-50 area. GBPUSD is in the same boat as the euro. GBPUSD resistance is at 1.2910 and 1.2960. Brexit issues should limit gains.
Oil prices have pumped higher. WTI topped out at $69.16 and is currently trading at $68.87 Prices are supported by concerns of tightening supply while gains are capped by concerns that China/US trade issues will undermine global growth.
Today’s US data includes Case-Shiller Home Price Indices (forecast 6.5%) Wholesale Inventories and the Richmond Fed Manufacturing Index, none of which are key indices for FX traders.
USDCAD Technical Outlook
The USDCAD technials are bearish. The break below support in the 1.3005/1.2990 zone suggests further weakness to 1.2730. It won’t be a straight shot lower. There is support at 1.2930, 1.2910 and 1.2850. Intraday, a break above 1.2980would suggest further gains to the 1.3040-60 area. For today, USDCAD support is at 1.2930 and 1.2910. Resistance 1.2980 and 1.3030.
Today’s Range 1.2910-1.2990