ECB President Christine Lagarde  Photo: ECB

July 16, 2020

USDCAD Open (6:00 am) 1.3531-35, Overnight Range: 1.3503-1.3535

  • ECB leaves rates and policy unchanged
  • US Dollar waffling between risk-on and risk-off
  • US Retail Sales soar, jobless claims stumble

Source: Saxo Bank/IFXA

FX Recap and outlook: The ECB press conference  following the policy statement is in full swing.  The ECB left interest rates  and the Pandemic Emergency Purchasing Program (PEPP) unchanged, as was expected, and said rates would remain that way until inflation is close to 2%, consistently.  Ms Lagarde justified the decision in her press conference  opening statement.  She said that “economic indicators remain well below the levels recorded before the pandemic, and the recovery is in its early stages and remains uneven across sectors and jurisdictions.”

EURUSD bounced between 1.1395-1.1410 between the policy statement release and the press conference.  Yesterday’s rally stalled at  1.1445 but is merely consolidating gains before resuming the uptrend if prices stay above 1.1370.

Today’s US data dump offered up a mixed bag of results.  Retail Sales rose 7.5% in June, beating the forecast of 5.0% m/m, and the Philadelphia Manufacturing Index was 24.1 (forecast 20.0). The good news was offset by Initial Jobless Claims, which  were steady at 1.300 million for the week.

Overnight, China economic growth returned with a vengeance.  Q2 GDP soared 11.5% q/q compared to -9.8% previously.  GDP rose 3.2% y/y vs a drop of 6.8% previously. Unfortunately,  Retail Sales data failed to keep pace with June Sales and dropped  1.8% y/y. 

Elevated US/China tensions stemming from Huawei bans, China action in Hong Kong and China’s South China Sea, ambitions, encouraged traders to take advantage of the lofty gains in stock markets to book some profits.  The Shanghai Shenzhen CSI 300 index dropped 4.18%, helping to drive other Asia equity indexes lower.  European equities followed Asia’s lead, with the looming ECB meeting, providing additional incentive to sell.  S&P futures are down,  pointing to a negative open on Wall Street.

FX traders took note of the equity market sell-off and bought US dollars.  Despite the recent back and forth price action,  EUR, CAD, and AUD are higher compared to Friday’s close, while GBPUSD  led JPY CHF, and NZD lower, suggesting that confirmation the US dollar is embarking on a new leg lower, is missing.

GBPUSD continued yesterday’s slide from 1.2645 and hit 1.2521 in Europe.  UK employment data was slightly better than forecasts but was ignored.  Traders are torn between hope from fiscal stimulus and despair from EU/UK trade talks.  The intraday technicals suggest that a break below 1.2510 would extend losses to 1.2430.

USDJPY  has traded in a 106.65-107.75 range for the past two weeks, and it is just below the mid-point of the range in NY trading.  China’s GDP news helped underpin prices as did steady US Treasury yields which are well-above this weeks low.

AUDUSD was unable to garner any support from better than expected employment data.  AUDUSD peaked at 0.7032 yesterday, then retreated.  The sell-off continued overnight on the back of broad US dollar demand.  A decisive break below 0.6910 would spark additional losses to 0.6600.

Opec and Russia agreed to scale back the size of production cuts beginning August 1.  The Cartel+ Russia’s total production cuts will drop from 9.7 million barrels/day to 7.7 million BPD.  WTI traded steadily in a $40.62-$41.15 band.

USDCAD dropped yesterday, falling to 1.3502.  The drop coincided with the Bank of Canada policy statement and release of the Monetary Policy Report.  That was just a coincidence.  USDCAD tracked broad US dollar sentiment, and its low occurred at the EURUSD peak.  The BoC statement and MPR did not offer anything new.  Officials are uncertain about how the pandemic will impact the economy, and the only insight they offered was “things could get better, or they could get worse.”

USDCAD Technicals:   USDCAD attempted and failed to break support at 1.3500 yesterday.  That level has contained downside moves for the past month.  A break above 1.3540 would extend gains to 1.3570, which if broken would argue that another short -term bottom is in place, setting the stage for another test of 1.3660 resistance.  Below 1.3500 risks 1.3460 and then 1.3360.  For today, USDCAD support is at 1.3500 and 1.3460. Resistance is at 1.3550 and 1.3590.  Today’s Range 1.3500-1.3570.

Chart: USDCAD hourly

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Source:  Saxo Bank