May 2, 2019

USDCAD Open (6:00 am EDT) 1.3445-48   Overnight Range 1.3433-1.3449

Yesterday’s FOMC meeting was expected to confirm the Fed’s dovish bias.  It did, and it didn’t.  The policy statement was more or less the same as the March 20 statement noting “On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent.” 

The statement was considered to be dovish, and the US dollar was sold. Then Fed Chair Jerome Powell started talking. He was far from dovish.  He spoke of moderating concerns around global growth, a disruptive Brexit and of progress in the trade talks between the US and China.  The kicker was his comments about downward inflation pressures being “transitory”, and his expectations inflation will return to 2.0%.

Those fearing the Fed would cut rates at some point in the future, quickly changed their minds and the US dollar rallied. The day finished with AUD and NZD neck and neck for the worst performing currency followed by EUR and CAD.

Asia FX markets were quiet with Japan still closed.  The European session wasn’t a whole lot better.  Eurozone April PMI rose 47.9 (forecast 47.8) which is still in recession territory but gave EURUSD a bit of support nonetheless.

GBPUSD drifted higher, underpinned by modestly better than expected Construction PMI (Actual 50.5 vs forecast 50.3) but prices retreated ahead of the Bank of England policy meeting.  The BoE left rates unchanged at 0.75%, as almost universally expected.

WTI oil prices plunged yesterday after the EIA reported a 9.943 million barrel increase in crude inventories.  Those losses were reversed in the afternoon, but sellers emerged overnight.  WTI dropped from a closing level of $63.61/b to $62.74/b. The issue is if Saudi Arabia will boost production to offset Iran production losses due to US sanctions.  If they don’t, prices could retest $67.00/b.

USDCAD tracked US dollar price movements and mostly ignored WTI price action.  Bank of Canada Governor Stephen Poloz’s comments about “transitory” negative Canadian economic issues did not carry the same weight as Mr Powell’s words.

Today’s US data includes Weekly Jobless Claims, Nonfarm productivity and Factory orders.   Traders are more concerned ahead of Friday’s US nonfarm payrolls report.

USDCAD Technical Outlook

The USDCAD technicals are bullish above 1.3360, looking for a break above 1.3520 to extend gains to 1.3660 and then 1.3750.  A move below 1.3380 targets long term uptrend line at 1.3250, although there is plenty of other support levels guarding that line.  The intraday technicals are bearish while prices are below 1.3450, looking for a dip to 1.3390.  Today’s Range 1.3380-1.3460

Chart: USDCAD  1 day