President Trump campaigned on ‘tearing up NAFTA and he is in the process of fulfilling that promise under the guise of renegotiation.
It is evident that the American negotiating tactic is to make outrageous demands, knowing that they will be rejected and thus let the Americans walk away from the table, complaining that they can’t get a deal done.
That evidence became clearer on the weekend. The American’s are demanding 85 percent North American content in all automobiles with 50 percent of that content from the USA. And, they plan on changing the content calculation formula to one that favours the Americans.
USDCAD took note of the rise in oil prices and did nothing. Instead, prices drifted higher, in a narrow band. The Bank of Canada Business Outlook Survey is released today. It will garner a little for attention than usual because Governor Poloz cited developments in the June 30 report for supporting interest rate increases. USDCAD accelerated in early New York trading, breaking resistance at 1.2510 and touching 1.2540, in part due to the domestic reaction to the US NAFTA demands.
The NAFTA news didn’t get much attention in overnight markets, but that wasn’t the case in early New York trading. USDCAD rallied from an overnight low of 1.2472 to 1.2543. The US dollar opened in New York with very modest gains to start a week that is notable for its lack of top-tier, actionable US economic reports.
The Spain/Catalan dispute is ongoing. Prime Minister Rajoy issued a Monday deadline for the Catalan Leader Carles Puigdemont to say Independence or No Independence. Puigdemont wants a dialogue, and Rajoy wants him to shut-up.
Oil prices were the big mover overnight. Iraqui forces are clashing with Kurdish forces near the Kirkuk oil field. WTI rose from Friday’s $51.35/b closing rate to $52.21 in Europe.
In Asia, USDJPY opened with a bid, rallying from 111.66 to 112.06 but that move was fully reversed. In early European trading. USDJPY traders liked Friday’s US inflation report but not enough to sustain the gains.
China CPI and PPI data beat the forecasts. CPI rose 0.5% (forecast 0.4% m/m) while PPI rose 6.9% (forecast 6.3%, y/y). Coincidentally, the positive news was just in time for the start of the Communist Party Congress.
The better China data underpinned NZDUSD which drifted higher in a narrow range. AUDUSD was at the lower end of its narrow band.
EURUSD inched lower due to a right wing election victory in Austria, bearish technicals and Spanish politics.
Sterling was whippy inside a tight range ahead of a slew of economic reports later in the week
USDCAD Technical outlook:
The intraday USDCAD technicals are bullish while prices are above 1.2470 looking for a break of 1.2570 to extend gains to 1.2680 and then 1.2570. On the other hand, the downtrend from June is intact while prices are below 1.2570. It suggests a break of support at 1.2450-70 area will lead to a test of 1.2330. For today, USDCAD support is at 1.2510 and 1.2470. Resistance is at 1.2540 and 1.2570
Today’s Range 1.2470-1.2570
Chart: USDCAD 4 hour
