June 1, 2020

USDCAD Open (6:00 am) 1.3727-31 Overnight Range: 1.3675-1.3799

  • China data and tame Trump speech fire risk sentiment
  • Oil prices surge on rumours of Opec/Russia production cut extension
  • US dollar slides as US cities burn

Percent change in currency value for May

A screenshot of a cell phone Description automatically generated (Moderate)

Source: Saxo Bank/IFXA

FX Recap and outlook: Relief that President Trump’s Friday afternoon press conference was all bark and no bite, combined with better than expected China Manufacturing PMI data sparked a “risk-on” rally overnight. However, caution ahead of central bank meeting’s and US employment data Friday, suggest the rally will not last the week.

Friday, Mr Trump used Beijing’s attempt to quell unrest in Hong Kong, as an excuse to begin the process of stripping HK of its “special trade status.” He also said that the US would put sanctions on some PRC and HK officials. Fears that Mr Trump would scrap the US/China Phase 1 trade deal proved unfounded, giving the green light to “risk-seeking” trades. China-bashing was a central theme in Trump’s 2016 election campaign, and it is evident that it remains a core platform for the 2020 campaign.

The Caixin China May Purchasing Manufacturers Index rose to 50.7, compared to 49.4 in April. The news was a positive development which underpinned the commodity currency bloc. However, contracting new export and import orders suggest the global recovery will be slow.

Traders eagerly sold US dollars as rioters burned US cities.

The riots may slow the US recovery from the COVID-19 lockdown measures.

EURUSD cracked through resistance in the 1.1050-60 area on Friday and extended those gains to 1.1153 overnight. Thursday’s ECB policy meeting will be closely watched.

EURUSD cracks through resistance and opens up topside

Policymakers are expected to increase the size of the Pandemic Emergency Purchase Program (PEPP). Economists also expect that downgrades of ECB forecasts, which could give EURSD a negative bias. However, EURUSD will continue to be supported by the European Union (EU) proposal for an €825 billion COVID-19 Relief Fund. The intraday EURUSD technicals are bullish above 1.1075. The overnight break of resistance at 1.1150 targets 1.1240. A move below 1.1060 suggests a retest of 1.0950 while leaving the May uptrend intact above 1.0905.

GBPUSD retreated from its overnight peak of 1.2424, in part because the Manufacturing PMI data was weak, but also because of uncertainty around this week’s EU/UK trade talks. They are in their final round this week with the June 30 deadline, imposed by the EU for an “outline agreement” looming. Without that agreement, the EU say they would be unwilling to discuss a broader free trade pact. The GBPUSD uptrend from the middle of May is intact while prices are above 1.2250 but needs to break through resistance at 1.2430 to extend gains to 1.2505.

AUDUSD and NZDUSD rallied following the Chinese PMI data and consolidated those gains in Europe.

USDCAD plunged with the broad US dollar weakness and the surge in WTI oil prices to $35.87. Prices bounced from their 1.3675 low to 1.3710, due to profit-taking and a dip in crude prices. Wednesday’s Bank of Canada meeting will have little impact on USDCAD. Rates and policy will be unchanged, and there will not be a press conference, but there will be a change of Governors. Incumbent Stephen Poloz rides off into the sunset, while incoming Tiff Macklem takes his place at the head of the table.

USDCAD Technicals: The intraday USDCAD technicals are bearish while prices are below 1.3790, looking for a break of 1.3660 to extend losses to 1.3410. A break above 1.3790 argues for 1.3675-1.3890 consolidation. For today, USDCAD support is at 1.3670 and 1.3610. Resistance is at 1.3740 and 1.3790. Today’s Range 1.3670-1.3750.

Chart: USDCAD daily

Source: Saxo Bank