April 21, 2020

USDCAD open (6:00 am EST) 1.4240-44    Overnight Range 1.4116-1.4250

  • WTI May contract price turmoil spooked FX traders
  • Trump plans to suspend immigration into USA
  • Canada Retails Sales beat forecasts, but the news is ignored
  • US dollar rallies across the G-10 major currency spectrum

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:  Yesterday’s free-fall plunge in the Chicago Mercantile Exchange May WTI contract, which closed at -$37.63/barrel, soured global risk sentiment.  Asia equity indexes fell, led by a 1.97% drop in the Nikkei 225, while European bourses are rooted in the red this morning.  Wall Street equity futures are pointing to a negative open today. US  10-year Treasury yields took it on the chin, plunging 8.6% to 0.572% as of 6:30 am EDT.  Gold prices gave up all their Asia gains falling from $1,697.67 to $1,672.54 in early NY trading.

The WTI oil contracts are agreements to deliver crude to Cushing, Oklahoma at expiry.  Unfortunately, the combination of oil over-production and disappearing demand from COVID-19 containment measures meant there wasn’t much storage capacity available.  WTI May contract owners were forced to bail at any price, and they did.   It is doubtful that the supply/demand and storage issue is resolved in June, suggesting a replay of yesterday’s price action is not out of the question.

President Trump did his part to keep markets on edge, using the COVID-19 pandemic to promote his anti-immigration policies.  He tweeted “In light of the attack from the Invisible Enemy, as well as the need to protect the jobs of our GREAT American Citizens, I will be signing an Executive Order to temporarily suspend immigration into the United States!” 

EURUSD is trading near the bottom of its 1.0821-1.0870 range, weighed down by the lack of a unified EU response to the pandemic.  The EU leaders meet Thursday to discuss economic relief proposals made two weeks ago. Traders ignored German ZEW Survey results even though Investor confidence readings surged.

GBPUSD is also at the bottom of its overnight 1.2313-1.2443 range.  Traders were not impressed with the increase in the February unemployment rate to 4.0% and the drop in average hourly earnings.  The data preceded the COVID-19 outbreak and is only going to get worse. Traders are also cautious about the EU/UK trade talks because of the July 1 deadline to agree to extend the transition period beyond year-end.

USDJPY suffered from renewed risk aversion and the drop in US Treasury yields.

AUDUSD and NZDUSD were sold on the back of broad US dollar demand. RBA Governor Philip Lowe’s comments about Australia suffering its worst economic contraction since the 1930’s didn’t help AUDUSD sentiment.

USDCAD surged to 1.4263 due to the shift to negative risk sentiment, and because of the oil price performance.  Canada Retail Sales rose 0.3%m/m in March.  The data was ignored as poor risk sentiment kept the greenback in demand.

USDCAD technical outlook:

 The intraday USDCAD technicals are bullish above 1.4180, looking for a decisive break above the 1.4260 area to extend gains to 1.4350 and then 1.4470.  A break below 1.4180 targets a retest of 1.4040.    The longer term RSI and Bollinger band levels suggest the rally from 1.3890 is running out of steam.   For today, USDCAD support is at 1.4180 and 1.4140. Resistance is at 1.4260 and 1.4305. Today’s Range 1.4180-1.4260

Chart: USDCAD daily

Source: Saxo Bank