CAD
USDCAD soared overnight. It has climbed 0.0157 points since yesterday’s dovish Bank of Canada policy statement with bullish technicals and fresh geopolitical tensions suggesting further gains ahead.
The Bank of Canada left interest rates unchanged as expected but appeared to flip-flop from the bullish October economic outlook. Cause some economists to dial back their forecasts for 2019 rate increases. USDCAD rallied, but the rally stalled at major resistance in the 1.3380 area. That resistance crumbled in Asia triggering stop-loss buying and turning the technical picture bullish.
USDCAD traders will be paying close attention to Bank of Canada Governor Stephen Poloz’s speech followed by a Q and A, starting at 8:50 EST today. Traders are hoping that the speech (Economic Progress Report and financial stability) will clarify yesterday’s policy statement.However, since Fed Chair Powell turned dovish, perhaps Mr Poloz has followed suit.
There is a lot of US data including Jobless Claims, ADP Employment, ISM non-manufacturing PMI and Factory orders. Canada releases Merchandise Trade and Ivey PMI. However, market reaction may be muted due to tomorrow’s release of the US nonfarm payrolls report.
The USDCAD technicals are bullish. The break of triple-top resistance in the 1.3380 area also took out the 76.4% Fibonacci retracement level (1.3386) of the May 2017-September 2017 trading range. USDCAD has been grinding higher ever since and the break points to a 100% retracement which targets 1.3790. However, there is a lot of wood to chop between 1.3380 and 1.3790. The USDCAD uptrend is intact while prices are above 1.3170 which is guarded by support in the 1.3360-80 area and again at 1.3230. A break above 1.3470 will target 1.3540.
The overnight move wasn’t because of the Bank of Canada’s statement. It was due to a massive shift into risk aversion trades on fears that the fragile US/China trade truce would collapse. Canada arrested Huawei CFO and Deputy Chair Meng Wanzhou at the request of the US Justice Department. The Americans want her extradited to face charges of violating sanctions by trading with Iran. China officials are outraged. Traders piled into the traditional safe havens, buying Japanese yen and Swiss franc while selling the commodity bloc currencies. AUDUSD was the biggest loser, falling from 0.7272 to 0.7193, with NZDUSD close behind.
For today USDCAD support is at 1.3410, 1.3380 and 1.3360. Resistance is at 1.3440, 1.3470 and 1.3540
Today’s Range 1.3370-1.3470
JPY
USDJPY selling was exacerbated by falling US Treasury yields. 10-year Treasury yields dipped below 2.90% due to China/US trade concerns as fears that the Fed has also turned dovish.
EUR
EURUSD is offered while trading in an overnight range of 1.1322-51 but mired inside a 1.1260-1.1440 range which has contained moves since the middle of November. The EU/Italy budget impasse continues.
GBP
GBPUSD traded heavily in a 1.2700-1.2751 band weighed down ahead of the UK Parliament debate next Tuesday. At the moment, PM May is at risk of losing the vote and her job.
The reaction to the Huawei CFO’s arrest was delayed. She was taken into custody on Saturday when Trump and Jinping were making “nice” in Argentina. The Canadian dollar may be extra vulnerable if China takes action against Canada for detaining their citizen.
Oil
The annual Opec meeting is today. WTI dropped from $54.35/barrel yesterday to $50.27/b today before bouncing to $51.60/b in early New York trading. Traders are concerned about the size of the rumoured production cuts (estimates are for 1.0-1.3 mb/day) and how effective they would be in the face of renewed US/China trade tensions.
