December 13, 2019

USDCAD open 1.3156-60 (6:00 am EST)              Overnight range 1.3153-1.3181

It takes two to tango and two to make a bi-lateral trade deal. USDCAD dipped while AUDUSD and NZDUSD rallied, yesterday and overnight.  The catalyst was a “teasing” tweet from President Trump who said “Getting VERY close to a BIG DEAL with China.  They want it, and so do we.”  The major media outlets reported “Trump signs off on tentative China trade deal.”  They weren’t quite dancing in the streets, but traders were in a good mood.  The problem is that no other senior US trade negotiators have confirmed the gist of Trump’s tweet.  Even worse, China hasn’t announced that it agreed to anything.

GBPUSD was the biggest mover, and most volatile currency pair, in active FX markets overnight.  The US dollar opened with losses across the major G-10 spectrum with only JPY losing ground.

FX Market Snapshot

Change in currency value against the US dollar from NY close to NY  open

Source:  Saxo Bank/IFXA

It’s Friday the 13th and for the UK Labour party it is the “Nightmare on 10 Downing Street.”  Prime Minister Boris Johnston’s Conservative party secured a 38 seat majority which greased the skids for Brexit on January 31, 2020.   GBPUSD gapped higher immediately after the first exit poll was released, rising from 1.3165 to 1.3513, a 2.6% surge within 90 minutes.  UK stocks soared with the FTSE 250 hitting a record high

Chart: GBPUSD 5 minute

Source: Saxo Bank

US Retail Sales in November were weaker than expected.  They rose 0.2% compared to forecasts for a 0.5% m/m gain, however the news was offset by an upward revision to the October results, from 0.3% to 0.4% m/m.  The FX market did not react to the news.

EURUSD surged higher, rising from 1.1132 to 1.1199, on the back of the Sterling rally, and prices are just below the peak, in early New York trading. Euro-area economic reports were mostly weak but not a factor for traders, due to the UK news. ECB Vice President Luis de Guindos said that the slowdown in the Euro area had bottomed out and called for structural and fiscal reform to stimulate the economy, rather than monetary policy.

USDJPY soared as “safe-haven” trades were unwound on elevated expectations for a US/China Phase 1 deal, and the reduced risk of a US tariff hike on Sunday. Prices were also supported by a steep rally in US 10-year Treasury yields which spiked to 1.95% from 1.89% after the UK election exit polls. Prices retreated to 1.892% in early New York trading. The modestly weak Tankan results didn’t help.

AUDUSD and NZDUSD climbed on the back of the US/China trade story and are consolidating those gains in early trading today. AUDUSD prices were also supported by bullish technicals which show a short term uptrend above 0.6840, looking for a break of 0.6925 to extend gains to 0.6985.

Oil prices continue to extend post-Opec production cut gains with elevated US/China trade deal hopes accelerating the rally. However, the downtrend line from April comes into play in the $60.00/b, which may cap gains in the short term.

Bank of Canada Governor Stephen Poloz’s speech yesterday didn’t have any impact on USDCAD trading. The currency pair is tracking broad US dollar moves and undermined By the US/China trade news. If China agrees to a fixed $50 billion of agricultural product purchases, which is reportedly part of a Phase 1 deal, it is likely the increase will harm Canadian agricultural sales to China. That is undoubtedly a Canadian dollar negative.

Today, US November Retail Sales are expected to rise 0.5% m/m, with upside risk to the forecast from car sales. The Canadian calendar is empty.

USDCAD Technical View

The intraday technicals are bearish below 1.3220, looking for a break of support at 1.3150 to extend gains down to 1.3090-1.3105.  The uptrend line from October 2018 comes into play in the 1.3060-80 area. For today, support is at 1.3150 and 1.3110. Resistance is at 1.3190 and 1.3210.  Today’s Range 1.3120-1.3190

Chart:  USDCAD daily

Source: Saxo Bank