February 26, 2020

USDCAD open (6:00 am EST) 1.3300-04     Overnight Range 1.3277-1.3306

The US Centers for Disease Control and Prevention (CDC) poured gasoline on the fire that was Wall Street, yesterday.  In a press release, under risk assessment “The potential public health threat posed by COVID-19 is high, both globally and to the United States.”  By itself, that quote was relatively harmless, but they went on to say “However, it’s important to note that current global circumstances suggest it is likely that this virus will cause a pandemic. 

President Trump blames the media for the market reaction.  This morning he tweeted “Low Ratings Fake News MSDNC (Comcast) & @CNN are doing everything possible to make the Caronavirus look as bad as possible, including panicking markets, if possible. Likewise their incompetent Do Nothing Democrat comrades are all talk, no action. USA in great shape!

His comment is valid considering San Francisco Mayor London Breed’s reaction. He jumped on the pandemic bandwagon and declared a “local emergency” despite his city not having any reported COVID-19 cases.

Wall Street melted down, for the second day in a row.  The Dow Jones Industrial Average lost 3.15% with similar losses recorded by the S&P 500 and Nasdaq.  Asia equity markets followed suit and closed lower, but not to the same degree as the US markets.

European bourses have slid deep into the red led by a 1.58% in the German Dax  (as of 6:10 am EST).  South Korea reported 284 new confirmed coronavirus cases on Wednesday bringing the World total to 81,183. US equity futures are flipping between positive and negative, with many hoping that Wall Street rebounds after two miserable sessions.

The US dollar opened this morning with gains against the G-10 majors except against the Japanese yen and Swiss franc.

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 managed to hang on to yesterday’s gains, despite broad US dollar demand elsewhere.

Markets are pricing in at least one ECB rate cut in 2020, which is one less than what they expect from the Fed. Fed Vice Chair Richard Clarida disagrees.  Yesterday he said it was “still too soon to speculate as to whether COVID would lead to a material change in the Fed’s outlook. The intraday technicals are bullish above 1.0850, looking for a break above 1.0920 to extend gains to 1.0960.

GBPUSD rallied in Asia until the BRC Shop Price Index data was released.  It was worse than expected, and GBPUSD dropped from 1.3007 to 1.2925 in Toronto trading.  Prices are also under pressure ahead of the upcoming start to the EU/UK trade negotiations.

The intraday technicals are bearish below 1.3020, looking for another test of support at 1.2950.

USDJPY inched higher overnight, rising from 110.14 to 110.54, supported by Fed rate cut chatter. Prices are well below last Thursday’s 112.15 peak, as safe-haven demand for yen due to COVID-19 pandemic fears, overwhelms selling pressure from the chase for yield.

The intraday technicals are bearish below 110.70 with a break below 109.50, setting the stage for deeper losses.

AUDUSD and NZDUSD are hovering around their overnight lows, pressured by rising fears of a global economic slowdown from a coronavirus pandemic.

Oil prices are suffering from COVID-19, with WTI hitting a 12-month low at $49.01/barrel.  Goldman Sachs analysts lowered their 2020 oil demand growth forecast from 1.2 million barrels per day to 600,000 BPD.  Prices are further undermined because Russia and Opec haven’t agree to any new production cuts.

USDCAD continues to drift in this week’s 1.3250-1.3306 range.  Prices continue to be supported by falling oil prices, as well as safe-haven demand for US, and (to a lesser degree), Canadian dollars.  Coronavirus fears led to the traders forecasting two Fed rate cuts in 2020, according to the FedWatch tool. That change in sentiment has acted as a drag on USDCAD gains from speculation the Bank of Canada (BoC) will cut interest rates in the coming months, with some believing as early as next week.

The US and Canadian economic calendars are empty, leaving Coronavirus headlines and Wall Street to drive FX price action.

USDCAD Technical Outlook

The intraday USDCAD are unchanged from yesterday.  The intraday uptrend is intact above 1.3250 but prices need to break above 1.3350 to snap the January-February trading range.  A topside break could occur on March 4, if the BoC surprises markets and cuts interest rates. 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 4 hour

Source: Saxo Bank