USDCAD Open (6:00 am) 1.3970-74, Overnight Range: 1.3977-1.4006

• American’s and Brit’s holiday-Global FX markets take a breather
• China/Hong Kong tensions keep risk aversion fears alive
• German GDP -2.3% as expected-IFO Sentiment recovers (somewhat)
• The US dollar opened in Toronto mixed, and little changed compared to Friday’s close

Percent change in currency value against US dollar-Mon. NY open to Fri. NY open (6:00 am EDT)

Source: Saxo Bank/IFXA

FX Recap and outlook:  The USA and UK took Monday off.  FX traders, world-wide, followed suit, although they pretended to work.Hong Kong riot police were working.  They used tear gas and fire hoses to break up protesters.  HK security officials suggested “terrorism” is growing, which spooked Asia markets, briefly.

FX markets opened in Asia with a bout of risk aversion sentiment.  AUDUSD and NZDUSD gapped lower at the open, but the move was quickly reversed.  AUDUSD downside is vulnerable as China/Australia trade tensions simmer.  China slapped duties an 80% tariff on Australia barely, as well as tariffs on seafood, oatmeal, and fruit last week, after barring imports of red meat from four producers, previously.  Nevertheless, both currency pairs traded in narrow ranges with light volumes.

USDJPY traded quietly in a 107.58-107.77 range.  Prices are supported by bullish short term technicals.  The uptrend from May 4 is intact while prices are above 107.40 and looking for a break of resistance at 108.10 to extend gains to 109.35.  Japan’s Finance Minister said that despite expectations for a tick higher in the unemployment rate, the “the bottom has not fallen out of the economy.” Japan plans to end their State of Emergency, as early as today.

EURUSD drifted lower, falling from 1.0908 in Asia to 1.0872mid-morning in Europe, before reversing the drop at the Toronto open.  The German IFO Business Climate Index stopped falling, which is a good sign.  However, the IFO noted in manufacturing, the Business Climate Index rose appreciably.  However, this was due only to companies’ much improved expectations.  Industrial companies are still a long way from optimism.  Their assessment of the current situation was once again markedly worse.”.  The German France Recovery bond fund plan has been countered by the: “Frugal Four” (Austria, Denmark, Sweden, and the Netherlands).  Their plan is to provide coronavirus aid to regions as one-off loans” which must be directed to research, and the health sector.

The UK was closed.  GBPUSD drifted form its overnight low of 1.2165 to 1.2190 in early Toronto trading.  The intraday technicals remain bearish below 102210.

Oil prices are steady, and back to their overnight peak level.  Prices are supported by reports that China’s crude demand has recovered to 13.0 million barrels /day, while US crude production has dropped to 10.3 million bpd.  However, the ongoing fall-out from the measures taken to combat the coronavirus pandemic, may limit further WTI gains to $35.00/b.

USDCAD drifted lower, outperforming its antipodean cousins, albeit in a small range. Sentiment is mildly bearish.  Thursday,Bank of Canada Governor Stephen Poloz waxed optimistically about the outlook for Canada’s economy.  He said, “We started this whole episode with our economy operating [at] full employment, at capacity and inflation on target, which is not something that was shared by many other countries.” He is also retiring on June 2, so his comments may just be a “farewell boast.”  Rising oil prices provide a little support to the Governors’ view, which should translate into lower USDCAD.  The elevation of tensions between China and Hongkong, may lead to demand for Canadian dollars, like 1998 when Britain ceded control of HK to China.

Bank of Canada Governor Stephen Poloz delivers his swan song today.  His last speech before retiring on June 2 is titled “Monetary Policy in Unknowable Times.”  His remarks should echo his testimony last week, to the Finance Committee.

USDCAD Technicals:  The technicals are bearish.  USDCAD has posted a series of lower highs since March 30 and while prices are below 1.4105, the trend is still lower.  That downtrend line is guarded by resistance in the 1.4050 area.  The four-hour chart suggests USDCAD is over-bought and due for a retracement.

For today, USDCAD support is at 1.3970 and 1.3920.  Resistance is at 1.4005 and 1.4030. Today’s Range 1.3950-1.4000

Chart: USDCAD 4 hour

Source:  Saxo Bank