April 27, 2020

USDCAD open (6:00 am EST) 1.4054-58    Overnight Range 1.4042-1.4116

  • Mildly positive risk sentiment lifts global equity indexes, S&P futures, and US bond yields.
  • BoJ deja vu:  more stimulus and lower GDP growth predicted
  • Oil traders still concerned about storage ahead of May 1 production cuts.
  • US start adds to Friday’s losses, , led by AUD gains.

Chart: Currency gain/loss (%) against the US dollar from NY close to NY open (6:00 EST)

Source: Saxo Bank/IFXA

FX Recap and outlook:  Global Economy reopening chatter has improved the over-all risk tone, although except for a couple of “backward” US states, its all talk and no action.  Every day feels like Sunday.

FX markets got off to a rough start to what for many countries in Asia and Europe, will be a short week.  The Bank of Japan kicked things off with its Monetary policy announcement.  For the second meeting in a row, the BoJ left rates unchanged a -0.1%, trimmed 2020 GDP growth forecasts (actual -0.5%, previous -0.3% and increased quantitative easing by removing the cap to JGB purchases. USDJPY dropped to 107.06 from 107.63, bounced back to 107.60 and then drifted lower into the NY open. 

The Commitments of Traders report from the Chicago Mercantile Exchange highlighted the positive shift in FX risk sentiment noting that net short US dollar index (DXY) positions and net-long EURUSD positions, increased.

Oil prices cannot get any upside traction. Opec/Russia production cuts take effect on Friday, but global coronavirus restrictions have slashed demand.  Storage concerns continue to cap gains.  WTI closed at $16.94/b, Friday and is trading at $14.40 in NY, which just above the overnight low of $14.28.

EURUSD traded with a small bid, rising from 1.0809 to 1.0858, in part due to rising hopes that COVID-19 restrictions will soon be eased or removed outright. Italy announced that funerals could resume with a maximum of 15 attendees while bars and restaurants can reopen for takeaway starting May 4.  Sports teams can hold group training as of May 18.  There is a lot of Eurozone data this week but not today and traders have low expectations for Thursday’s ECB meeting.

GBPUSD rallied alongside EURUSD, supported by talk that Prime Minister Boris Johnson will be announcing plans to ease lockdown restrictions.

AUDUSD and NZDUSD rallied. Both currencies pairs were it hard at the start of the pandemic, and it stands to reason that they should recover first.  China reported that all COVID-19 patients in Wuhan had been discharged.

USDCAD dropped alongside the antipodean currencies and undermined by the improved risk tone.

However, soft oil prices and strong technical support in the 1.4000 area may limit losses.

USDCAD technical outlook:

 The intraday USDCAD technicals are bearish below 1.4090.  A break below hourly support at 1.4040 will lead to a test of longer term support in the 1.3990-1.4000 area.  If broken decisively, losses could be extended to 1.3850.   A move above 1.4090 would shift the focus to 1.4250. For today, USDCAD support is at 1.4040 and the 1.3990- 1.4005.  Resistance is at 1.4090 and 1.4150.  Today’s Range 1.4030-1.4090

Chart: USDCAD daily

Source: Saxo Bank