Source: Pixabay

July 19, 2021

Risk aversion, and plunging oil prices, crush Canadian dollar

River of red runs through oil, gold, European Equities, S&P 500

US dollar opens with a bid, except vs GBP and JPY

USDCAD open 1.2756-60, Overnight range, 1.2609-1.2779,  Previous close 1.2614

FX at a Glance

Source: IFXA/RP

FX Recap and outlook

USDCAD closed with a bid on Friday,  climbed steadily in Asia, then soared in Europe, with the rally exacerbated by stop-loss buying on the break above 1.2650 and touched 1.2806 in early NY trading. That’s a 1.5% gain since Friday’s close and nearly 3.0% since the Bank of Canada meeting July 14.

A steep plunge in WTI oil prices exacerbated USDCAD gains. However, the bulk of the rally was due to rising risk aversion sentiment stemming from fresh COVID-19 restrictions in Australia, and Europe, elevated US/ China tensions, and wobbly equity markets.

Those same issues lifted the US dollar against the rest of the G-10 majors, except GBP and JPY.

EURUSD is probing key support in the 1.1770 area after trading in a 1.1766-1.1805 overnight.  Prices are weighed down by renewed risk aversion sentiment and fear the ECB will strengthen their dovish commentary, promising to maintain an accommodative monetary policy, even as they plan to taper PEPP purchases.  EURUSD is targeting further losses to 1.1650-1.1700.

GBPUSD is near the bottom of its 1.3703-1.3773 range overnight, weighed down by broad safe-haven demand for US dollars.  A break of support at 1.3650 would extend losses to 1.3420, while a break above 1.3850 targets 1.4000.  The currency pair is suffering from recent data indicating slowing growth, which will be highlighted this week with the release of Manufacturing PPI, Friday.

USDJPY dropped to 109.71 from 110.09 in tandem with US 10-year treasury yields plunging to 1.248% f from 1.30% Friday, and safe-haven demand for yen.

AUDUSD and NZDUSD were hit by broad US dollar demand from negative risk sentiment, with AUDUSD downside exacerbated by fears the latest coronavirus outbreak will delay Australia’s economic recovery.

Oil prices dropped after Opec, and friends agreed to raise production by 400,000 barrels/day starting in August and continuing until the end of 2022.  The deal unwinds all the pandemic cuts.  WTI dropped from Friday’s close of $71.45/barrel to %69.63/b in NY.

The US and Canadian data calendars are empty.

USDCAD technical outlook

The intraday USDCAD technicals are bullish above 1.2630, a level guarded by support (former resistance at 1.2650. The break above  1.2750 which capped gains since February 2021, targets 1.3000.  However, the steepness of the rally, in somewhat poor liquidity conditions warns  prices could easily drop to 1.2680 today, while maintain their bullish bias.   For today, USDCAD support is at 1.2740  and 1.2680.  Resistance is at 1.2810 and 1.2860.   Today’s range 1.2710-1.2810

Chart USDCAD daily

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank