February 25, 2020

USDCAD open (6:00 am EST) 1.3298-02     Overnight Range 1.3280-1.3304

The Dow Jones Industrial Average plunged 1,032 points yesterday, or 3.56%, erasing all of February’s gains.  Hopes for a “turn-around Tuesday” rippled throughout global equity markets but that proved to be all talk and no action, so far.   Asia equity indices closed with losses led by a 3.25% drop in Japan’s Nikkei 225.  European bourses gave up early gains and are in the red and US equity futures flipped from negative to positive.

Yesterday’s US stock market crash, and reports of new COVID-19 cases reported around the world, pushed economic news onto the back-burner. The US dollar opened in New York underpinned by a whiff of risk-aversion sentiment that fueled safe-haven demand for the Japanese yen and US dollar.

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:  EURUSD traded steadily in Asia but started retracing yesterday’s gains during the European session. EURUSD dropped from an overnight peak of 1.0866 to 1.0830 in early Toronto trading, in part because of the spreading coronavirus.  Turkey quarantined a plane that arrived from Iran. A hotel in the Canary Islands was locked down, and the Italian coronavirus count rose to 270. The World Health Organisation said the outbreak had not reached the level of a pandemic, but suggested countries step up preparations. EURUSD continues to be weighed down by bearish technicals and dovish European Central Bank monetary policy outlook.  Traders ignored news that German Q4 GDP rose 0.3% y/y.  EURUSD continues to be vulnerable to further losses to 1.0770 while prices are below 1.0890

GBPUSD rallied to 1.2989 from 1.2916 but dropped to 1.2960 after UK Distributive Trades Survey data missed forecasts.  EU trade officials said they are willing to offer the UK a deal that includes no tariffs and no quotas if the UK agrees to abide by EU environmental, labour, and tax policies.  The UK said they preferred to be economically and politically independent.

USDJPY inched higher in Asia but fresh coronavirus reaching pandemic status turned yield hunters into safe-haven seekers.  USDJPY dropped from 111.03 to 110.36 before clawing out gains to 110.50 in early New York trading

AUDUSD and NZDUSD were supported in Asia by speculation the Fed would react to the coronavirus and cut rates. The gains were not sustained and prices retreated to their overnight lows when New York opened.

USDCAD opened nearly unchanged to where it closed yesterday.  The currency tracked oil price movements and broad US dollar sentiment.  The news that Tech Resources withdrew its application for a $20.6 billion oil sands mine project because of a lack of clarity to Federal climate change policies didn’t have an immediate impact on the currency.  The fall-out from the Indigenous railway blockades, the effect on global growth from the coronavirus, and mediocre GDP growth, suggest the Bank of Canada could cut interest rates, as early as next week.  However, most forecasters believe the Bank will stay on hold until April.

Today’s US economic reports include Housing Starts, Case-Shiller Home Price Index, and Consumer Confidence. They are considered second-tier data and unlikely to have an impact on FX trading.  That puts Wall Street in the driver’s seat of FX risk sentiment.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish while trading above 1.3260, with a move above 1.3305 leading to a test of resistance in the 1.3330-50 area. USDCAD has been underpinned ever since the BoC flipped to a dovish monetary policy outlook on January 22.  For today, USDCAD support is at 1.3260 and 1.3230.  Resistance is at 1.3305 and 1.3350. today’s range 1.3260-1.3305

Chart: USDCAD daily

Source: Saxo Bank