June 11, 2020

USDCAD Open (6:00 am) 1.3460-64, Overnight Range: 1.3401-1.3497

• Weekly Initial Jobless Claims (actual 1.542 mio) as expected-no impact on FX
• Fed gives markets a reality check Dot-Plot predictions say no change in US rates until 2022
• US COVID-19 cases top 2 mio, some states report spike in new cases
• Safe-have demand lifts US dollar vs majors, except CHF, JPY; EUR flat

US Percent change in currency value

Source: Saxo Bank/IFXA

FX Recap and outlook:  The FOMC was dovish. What else could the Committee be, if they do not expect to raise interest rates until some time in 2022?  Markets reacted as though the Fed announced a shift in policy.  They didn’t.  All they did was not the severity of the pandemic.  They said: “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

The FOMC left rates unchanged and warned: “ The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Asia equity indexes tanked.

Australia’s ASX200 dropped 3.05%, and the Nikkei 225 fell 2.82%.  European bourses followed Asia lower with the FTSE 100 and German Dax off around 1.84% (6:30 am ET).  Gold prices extended this week’s rally with XAUUSD jumping from a post-Fed low of $1,708.05 to $1,739.65 overnight. US S&P futures are down 1.7% pointing to a negative open on Wall Street

Traders were also spooked by reports that the number of COVID-19 patients requiring hospitalization rose in a few states.  CNN said that since Memorial Day (May 25) COVID-19 hospital admissions rose in about a dozen states.

The US dollar sold off when the FOMC statement was released, but traders quickly realized the error of their ways

The US dollar sold off when the FOMC statement was released, but traders quickly realized the error of their ways. EURUSD dropped from 1.1369 to 1.1322, then shot up to 1.1422, within the first 20 minutes.  It consolidated in a 1.1365-1.1392 range until the Asia afternoon when prices plunged from 1.1393 to 1.1326.  European traders reverse the move, and the single currency opened in NY close to where it closed.  The intraday technicals are modestly bearish looking for a drop to 1.1270.

GBPUSD mirrored EURUSD moves.  After chopping about in a 1.2730-1.2809 range,  a host of negatives knocked it down to 1.2652 in Europe. Those negatives included weaker than expected RICS Housing Price Balances for May, failing UK/EU trade talks, and a Morgan Stanley forecast predicting the Bank of England will resort to negative rates.

USDJPY tumbled with plunging US Treasury yields, falling from a Fed peak of 107.45 to 106.81 overnight.  The 10-year Treasury yield dropped to 0.70% from 0.893% on Friday.

AUDUSD and NZDUSD were hammered by the shift to negative risk sentiment stemming from the Fed’s dim outlook for the US economy and the resurgence of COVID-19 cases.

Oil prices sank for the same reasons as the antipodean currencies but with the additional negative pressure after the EIA reported a 5.72 million increase in US crude inventories.  WTI oil dipped to $37.90/b from $39.03/b

USDCAD dropped to 1.3316 at the Fed announcement, then spiked to 1.3410, where it closed. It never saw the closing rate again in Asia or Europe, as the fresh wave of Fed policy, US COVID-19 fears, and the slide in crude prices, drove USDCAD to 1.3497.

Today’s US data, will be a non-event, as it won’t have any immediate effect on Fed policy.

USDCAD Technicals:  The intraday technicals are bullish while prices are trading above 1.3450, looking for a break above 1.3505 to extend gains to 1.3580.  In addition, a move above 1.3505 would suggest a short term low (1.3318) is in place.  For today, USDCAD support is at 1.3450 and 1.3390. Resistance is at 1.3505 and 1.3580. Today’s Range 1.3450-1.3550

Chart: USDCAD daily

Source:  Saxo Bank