January 27, 2020
USDCAD open (6:00 am EST) 1.3183-87 Overnight Range 1.3150-89
Rising Wuhan coronavirus fears spooked gold and oil traders. West Texas Intermediate (WTI) oil prices gapped lower at the Asia open and never recovered. Gold (XAUUSD) prices gapped higher, and it hasn’t filled the gap either.
Chart: US OIL and XAUUSD 30 minute
Source: Saxo Bank
Equity traders also ran scared. Asia equity markets are lower, at least those that were open. Australia was closed for Australia Day while other centers were shuttered for Chinese New Year celebrations. The included: China, Hong Kong, Malaysia, Vietnam, Taiwan, Singapore, and South Korea. European bourses and US equity futures are lower.
Risk aversion sentiment lifted JPY and CHF, while the commodity bloc currencies fell. GBP was a touch firmer while EUR was unchanged.
Chart: Currency gain/loss (%) against the US dollar from NY open Jan.20 to NY open Jan 24.
Source: Saxo Bank/IFXA Ltd
Disappointing German IFO survey results snapped a nascent EURUSD rally and knocked prices from 1.1036 to 1.1016 in Europe. January Business Climate, Current Assessment, and Expectations data were lower than expected and lower than the previous month’s readings. An Italian election resulted in a loss for Italy’s right-wing party led by Matteo Salvini. EURUSD technicals are bearish while prices are below 1.1080, targeting further losses to 1.0970. Traders are looking ahead to Wednesday’s FOMC meeting, although analysts do not expect any changes to policy.
GBPUSD is hovering just above its two-week 1.2960-1.3160 trading band. Traders are split as to whether the Bank of England will cut interest rates on Thursday or leave them unchanged. The following day is when the UK formally cedes from the European Union. The intraday GBP{USD technicals are bearish while prices are below 1.3130, looking for another test of 1.2960.
USDJPY gapped lower at the Asia open on the back of safe-haven demand for yen. USDJPY closed at 109.28, Friday and opened at 108.74 in Asia. Yesterday China reported 80 deaths from the coronavirus with another 2,744 people infected. The steep drop in US 10-year Treasury yields, from 1.84% on January 20 to 1.60% overnight exacerbated the selling pressure. The intraday USDJPY technicals are bearish below 109.60, targeting 108.25.
AUDUSD and NZDUSD dropped steadily due to concerns about the impact of the coronavirus on their economies. AUDUSD suffered additional pain from the drop in iron-ore prices.
WTI oil is being sold on fears that the China coronavirus outbreak will sharply curtail Chinese demand for crude, and slow global economic growth at the same time, forecasters from Opec, IEA and EIA predict oil supply to outstrip demand.
USDCAD rallied on the back of the drop in oil prices and bullish technicals. The Bank of Canada’s surprise shift to a dovish outlook is another factor underpinning the currency pair, as is broad demand for US dollars against the G-10 majors.
Today’s US New Home Sales, and Dallas Fed Manufacturing Business Index data will not have any impact on FX markets, ahead of Wednesday’s FOMC meeting. The Canadian economic calendar is empty.
USDCAD Technical Outlook
The intraday USDCAD technicals are bullish while trading above 1.3080, with the break above the 1.3160 area overnight, hanging a target on the 1.3230 level. For today, USDCAD support is at 1.3140 and 1.3110. Resistance is at 1.3190 and 1.3230. Today’s Range 1.3140-1.3210
Chart: USDCAD 4 hour
Source: Saxo Bank
