September 5, 2019

USDCAD Open (6:00 am EDT) 1.3198-01      Overnight Range 1.3193-22

Risk sentiment improved.  Reports from China’s Ministry of Commerce saying the latest telephone trade call went well and that face to face talks were planned for October, combined with lowered recession fears arising from a steepening in the US yield curve, boosted riskier assets. 

The US dollar opened in Toronto with losses across the board against the major G-10 currencies.  The exceptions were JPY and CHF which lost ground as safe-haven trades were unwound.

Currency gain/loss vs US dollar from New York close to New York open

GBPUSD rallied sharply, fueled by massive short-covering. Traders who had sold sterling anticipating a “no-deal” Brexit on October 31, rushed to cover positions after Boris Johnson lost two key votes in Parliament on Tuesday. Boris can’t catch a break. Even his brother resigned because of “unresolvable tensions.”  The break above 1.2275 turned the short term technicals bullish and targets 1.2590.

EURUSD ignored weaker than expected German Factory Orders data and traded higher, supported by soft-tone to the US dollar. Prices are flirting with pivotal resistance in the 1.1050 area which, if broken, suggests further gains to 1.1250.

USDJPY traded sideways in a 106.34-106.74 range. Dovish comments from BoJ officials yesterday helped offset new risk-seeking demand. Rising stock market prices and higher US Treasury yields supported prices.

AUDUSD extended yesterday’s gains, touching 0.6824 on the apparent thaw in the frosty US/China trade negotiations. A decisive break above 0.6830-35 targets 0.6920. A move below 0.6770 suggests renewed selling. Traders ignored the small narrowing of Australia’s Trade surplus, preferring to focus on the improved FX risk tone. NZDUSD tracked AUDUSD moves.

The US ISM Non-manufacturing report (forecast 54.0 vs July 53.7) is the marquee data release this morning. Other reports include ADP Employment, Initial Jobless claims and Factory Orders. However, the reaction to the data may be fleeting ahead of tomorrows US employment report. The Canadian economic calendar is empty.

USDCAD is trading at its overnight lows, on the back of broad US dollar weakness, and in part, because of the Bank of Canada (BoC) monetary policy statement yesterday. The BoC left rates unchanged but failed to blatantly telegraph that an interest rate cut would happen in October. Traders who were expecting a dovish result scrambled to unwind long USDCAD positions. Rising WTI oil prices, which climbed from $52.90/barrel on Tuesday to $56.62/b overnight added to the USDCAD selling pressure.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish.  The move below the 1.3250-70 area snapped the uptrend from the middle of July.  The subsequent break of 1.3220 opens the door to 1.3010.  However, the RSI suggests the recent drop is becoming oversold and lead to a bounce to 1.324.  For today, USDCAD support is at 1.3180 and 1.3110.  Resistance is 1.3205 and 1.3270.  Today’s Range 1.3170-1.3240

Chart:  USDCAD daily