July 10, 2019

USDCAD Open (6:00 am EDT) 1.3121-24   Overnight Range 1.3122-1.3135

It’s a big day for FX markets.  Traders expect to get clarity on the US and Canadian interest rate outlooks from Fed Chair Jerome Powell and Bank of Canada Governor Stephen Poloz

Mr Powell delivers his Semi-annual Monetary Policy Report to Congress before the House Financial Services Committee beginning at 10: am EDT.  Markets do not expect him to say anything that changes market expectations for a 25 bp rate cut on July 31.  However, there is concern that if he gives an “upbeat” economic outlook, the prospects for a second rate cut will be diminished.  The FOMC minutes from the June 19 meeting are released at 2:00 pm which may offer some insight as to the degree of dovishness permeating the FOMC.

The US dollar pared some of its recent gains, overnight and opened in New York on a mixed note, although little changed from yesterday’s close.

EURUSD traded sideways in Asia and then rallied from 1.1203 to 1.1226 in Europe as traders jockeyed for position ahead of the Powell speech.  Traders ignored reports that the European Commission lowered its 2020 growth forecast to 1.4% from 1.5%, and warned of downside risks to growth if China and the US raise tariffs.

GBPUSD climbed from 1.2445 to 1.2487, underpinned by a rebound in GDP.  May GDP rose 0.3%, as expected.  Manufacturing Production recovered as well, rising 1.4% after shrinking 4.2% in April.  However, the fluctuations were due to shifts in auto production because of Brexit, which limited the currency pairs gains.  GBPUSD continues to be weighed down by the risk of a “no-deal Brexit.

AUDUSD, and USDJPY traded quietly in Asia.  NZDUSD dropped on reports of a sizeable sell trade being executed.

USDCAD traded quietly but with a bid tone as prices continued to climb after touching 1.3040 last Thursday.  The move may just be position adjusting ahead of the Powell/Poloz circus today.

USDCAD peaked at 1.3560 in June. It has been falling ever since. The sell-off was triggered by a series of better than expected economic data reports, the resumption of China/US trade talks, a new rally in oil prices, and a narrowing of CAD/US interest rate differentials.  The better data profile continued last week.  Canada’s Trade balance swung into surplus, Manufacturing PMI ticked higher, and the 3.8% jump in average hourly earnings made the employment report look far better than the headline number suggested. Yesterday’s 24.8% jump in Housing Starts ticked another box in the bearish USDCAD outlook.   Oil prices got another boost yesterday when API data showed US crude inventories dropped 8.1 million barrels.

Today, the Bank of Canada is expected to walk a tightrope between optimism from recent economic data and the improved growth outlook and pessimism because of US/China trade tensions.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish while prices are above 1.3110, looking for a break of resistance at 1.3140 to extend gains to 1.3180 and then 1.3220.  Below 1.3110 shifts the focus to 1.3040.   Longer term,  USDCAD snapped an uptrend line from February 2018 with the move below 1.3340 in June.  In addition Fibonacci retracement projections from the September 2017 low of 1.2060 and the the December 2018 peak of 1.3660 suggests that a break of support at 1.3040 opens the door to further losses to 1.2860, the 50% retracement level.

 Today’s Range 1.3040-1.3140

Chart: USDCAD  daily