USDCAD Open (6:00 am) 1.3936-40 Range: Fri. close-Tues open 1.3909-1.4109
- German/France €500 billion bond plan invigorates risk sentiment
- German ZEW index sees light at the end of COVID-19 tunnel
- Fed Chair Powell on deck, today
- Commodity currency bloc rally leads G-10 currencies higher against US dollar
Percent change in currency value against US dollar -Mon. NY open-to Tues. NY open (6:00 am EDT)
Source: Saxo Bank/IFXA
FX Recap and outlook: USDCAD plunged from 1.4109 at the Asia open on Monday to end the day at 1.3940. The sell-off continued overnight until prices found a bottom at 1.3909 in Europe, today. The USDCAD losses had zero to do with domestic developments, as the currency pair were merely passengers on the risk rally bus. USDCAD is also undermined by the rally in oil prices which has pushed WTI above $30.00/barrel.
German Chancellor Merkel and French President Macron proposed a €500 billion EU fund for Europe. The funds would be used to support stimulus efforts to combat the COVID-19 outbreak, with the hardest hit countries receiving grants.
Positive sentiment was exaggerated by hopes that a COVID-19 vaccine could be ready for the public by January 2021. That’s a lot of hope, enough so that it powered the Dow Jones Industrial Average to a 911 point rally.
President Trump posted his letter to the WHO to his twitter account. It paints a rather negative picture of both China and the WHO’s actions around the pandemic.
EURUSD liked the German/France EU fund news, and it climbed from 1.0800 yesterday to 1.0956 today.
Prices were also supported by the jump in the German ZEW Economic Sentiment Index to 58 from 28.2 in April. A decisive break above 1.0960 would target resistance at 1.1070
GBPUSD bottomed out at 1.2075 in Asia yesterday, in part due to fears of increased hostility around the EU/UK trade talks as previous bearish comments from Bank of England officials weighed on sentiment. The Eurozone funding plans, the further easing of COVID-19 restrictions, and the Wall Street rally helped to drive GBPUSD to an overnight peak of 1.2267. GBPUSD needs to break above downtrend line resistance at 1.2280 to extend gains. UK employment data was largely ignored.
USDJPY rallied from 106.95 in Asia on Monday to 107.62 in NY today Prices were underpinned by the jump in 10-year US Treasury yields from 0.60% on Friday to a peak of 0.735% overnight.
Improved risk sentiment also fueled gains. There are reports that the Japanese government is considering a JPY 10 trillion funding program for companies hurt by the coronavirus.
AUDUSD and NZDUSD were the best-performing currency pairs against the US dollar since Friday’s close.
The RBA minutes from the May 5 meeting didn’t have any negative surprises.
The day ahead could see the US claw back some of its losses, as S&P futures point to a negative open on Wall Street. Fed Chair Powell and Treasury Secretary Mnuchin are in front of the Senate Banking Committee to explain their responses to the pandemic.
USDCAD technical outlook
The intraday USDCAD technicals are bearish below 1.3950, looking for a break of support at 1.3905 to extend losses to 1.3850. The downtrend from the end of March is intact below 1.4140. Support at 1.3850 has been tested multiple times since April 13. If it continues to hold, a break above 1.3960 would extend gains to 1.4130. For today, USDCAD support is at 1.3905 and 1.3850. Resistance is at 1.3960 and 1.4005. Today’s range 1.3905-1.3960
Chart: USDCAD daily
Source: Saxo Bank