August 11, 2020

USDCAD Open (6:00 am) 1.3292-96,  Overnight Range 1.3273–1.3359

• European stocks rally,  S&P Futures gain,  pumping up risk sentiment
• Gold crashes through $2,000.00 as US Treasury yields rise
• Canada Housing Starts and US PPI data ignored
• US dollar opens with gains across the G-10 spectrum except vs JPY

 Source: Saxo Bank/IFXA Ltd

FX Recap and outlook:  Canada Housing Starts rose 245,600 in July, above the forecast for a 210,000 increase. The gain is due to pent-up demand as coronavirus restrictions eased.  FX traders ignored the news.  US PPI increased 0.6% in July, the largest since October 2018.  

 Asia equity markets rallied on the heels of Wall Street gains while ignoring the tiny dip in the NASDAQ. Japan’s Nikkei 225,  Hong Kong’s Hang Seng, and Australia’s S&P/ASX indexes closed higher. European stock traders picked up the ball and ran with it, boosting Germany’s DAX index 2.69% at the NY open, while driving S&P futures to record highs.

FX traders were a little slow off the mark.  The US dollar was steady in Asia with the US dollar index in the 93.70 area before Europe opened.  Traders noted the stock market gain’s and sold US dollars.  The risk rally is occurring despite the US Congressional impasse on a new stimulus package.

GBPUSD to 1.3055 from 1.3088 when the employment data was released.  The UK added 94,400 jobs, and the unemployment rate was unchanged at 3.9%. Prices recovered rapidly and climbed to 1.3114 in NY trading thanks to markets shifting to risk-seeking.

EURUSD soared from its Asia low of 1.1723 to 1.1807 in NY trading. Relatively positive German and Eurozone ZEW data fueled the gains, alongside rising equity markets, and reports that new US COVID-19 cases are declining. The ZEW institute said the “ Indicator of Economic Sentiment for Germany increased again significantly compared to the previous month, after having declined slightly in July.”

USDJPY is choppy in a 105.94-106.23 band. Prices are underpinned by hopes for success with the ongoing US Congressional COVID-19 relief talks and the rise in US Treasury yields which climbed from 0.548% to 0.602%.

The improved risk tone lifted AUDUSD and NZDUSD.  Traders are looking ahead to Wednesday’s RBNZ policy meeting, although they expected to leave policy unchanged.

USDCAD dropped with the broad US dollar retreat.   Prices bottomed out in early NY trading and rebounded to 1.3294.    The currency pair saw added selling pressure from the rise in oil prices.  Yesterday Saudi Aramco officials forecasted rising crude demand for the rest of the year.  Only a cynic would suggest USDCAD is retreating because of chatter that Finance Minister Morneau will be dumped.  There is a lot of talk that Trudeau’s newest advisor, former Bank of England Governor Mark Carney, would get the job if he wins an upcoming by-election.  Carney hasn’t even said he would run, but reportedly,  aspires for high political office.  If so, he would certainly be an upgrade to the entire Liberal caucus.

USDCAD Technicals:   The intraday USDCAD technicals are bearish below 1.3340, a level guarded by resistance at 1.3320.  There is support at 1.3260, 1.3230, and 1.3205.  Things really get interesting in the 1.3170-90 area which is where the long term uptrend line (from September 2017) comes into play.  If broken decisively, an argument can be made for additional losses to 1.2000. That won’t happen today, or any time soon.  For today, USDCAD support is at 1.3260, and 1.3230.  Resistance is at 1.3320 and 1.3340.  today’s Range 1.3260-1.3320

Chart: USDCAD 30 minute

Source:  Saxo Bank