March 9, 2020
USDCAD open (6:00 am EST) 1.3590-94 Overnight Range 1.3425-1.3757 (not a typo)
- Oil prices collapsed. WTI lost 33% before bouncing from $27.36/b to $33.20/b in early New York trading.
- USDCAD gained 2.47% between Friday close and Asia peak, EURUSD rallied 1.82% in same period.
- Global equity indexes in free-fall UK FTSE 100 and German DAX down over 6.6%. S&P 500 futures are down 4.9%, another, ugly open on Wall Street. To paraphrase U2-Monday, Bloody Monday
- US 10-year Treasury yield plunged to 0.343% from 0.547% before recouping some losses, and touching 0.48%
- ECB fiddles while Italy sickens-16 million people quarantined. World-wide COVID-19 cases exceed 107,000
- Plenty of speculation that Fed will cut rates 0.50% again, as soon as today. On Friday, the odds of a 0.50% rate cut were 0, today, they are 77%.
Chart: CME Fedwatch tool- Fed Funds target rate probabilities.
- US dollar opens mixed; higher vs commodity bloc and down against the rest
Chart: Currency gain/loss (%) against the US dollar from Monday NY open to Friday NY open (6:00 EST)
Source: Saxo Bank/IFXA
FX Recap and outlook: Saudi Crown Prince Mohammad bin Salman had a temper tantrum. He wanted to support oil prices by cutting production by 1.5 million barrels/day.
Opec agreed. Russia didn’t. So, he went after Russia by slashing crude prices in a blatant market share grab. Crude prices were already falling because of significantly reduced Chinese demand due to the coronavirus. The spread of COVID-19 in Europe, exacerbated fears for a prolonged global growth slump.
EURUSD spiked to 1.1484 after closing at 1.1284.
Prices dropped to 1.1398 at the New York open, but they have since resumed their climb. The single currency is benefitting from the sharply narrowing US yield advantage and by speculation that because ECB rates are in negative territory, they may not cut them further but instead demand a fiscal response from EU governments. German economic reports were ignored. The EURUSD intraday uptrend is intact above 1.1220, but momentum indicators warn it is vulnerable to a steep correction.
GBPUSD rallied from Friday’s close of 1.3048 to a peak of 1.3199 in Asia before retreating to 1.3090 in New York trading. The risk of COVID-19 in the UK and fears of a hard exit from the EU helped to cap GBPUSD gains.
USDJPY plunged on the back of renewed safe-haven demand for yen, the steep plunge in US Treasury yields and weaker than expected Q4 GDP (actual -1.8% vs forecast 1.7% q/q). The intraday technicals are bearish while prices are below 105.00. However, Japanese officials are warning that the government is monitoring yen gains for excessive appreciation.
USDCAD soared alongside collapsing crude prices. Prices have climbed since the New York open of 1.3592 and are trading at 1.3662 as of 5:00 am PST.
The Canadian economy is far weaker than the US, which suggests the Bank of Canada would match any Fed rate cut move. BoC Governor Poloz said that the biggest risk to the economy was from COVID-19.
Today’s US and Canada economic data will be non-factors for traders. Instead, Wall Street price action and Fed rate cut chatter will drive direction.
USDCAD Technical Outlook
The intraday USDCAD technicals are bullish with the break of 1.3440 and then the break above the 2018 peak of 1.3665. However, the rally occurred in the thin, Asia trading, which suggests the spike above 1.3665 was an anomaly. The chart below highlights that USDCAD is extremely over-bought, although the current market panic, also wreaks havoc with technicals. USDCAD gapped higher at the Asia open. It closed at 1.3425 on Friday and opened at 1.3480 in Asia. Gaps are always filled. For today, USDCAD support is at 1.3570 and 1.3480. Resistance is at 1.3665 and 1.3720. Today’s range 1.3600-1.3700
Chart: USDCAD/Oil hourly
Source: Saxo Bank