July 7, 2020

USDCAD Open (6:00 am) 1.3570-74, Overnight Range: 1.3527-1.3587

  • Rising US COVID-19 cases halt equity rally
  • EU Commission economic forecasts  downgraded
  • RBA leaves rates, policy unchanged
  • US Dollar rises against G-10 majors, AUD the biggest loser

Percent change in US dollar

Source: Saxo Bank/IFXA

FX Recap and outlook:  Equity markets continue to be the tail that wags the FX dog.   Asia stock markets ignored Wall Street gains.  Instead, they focused on the resurgence of coronavirus cases in the US and retreated.

There are nearly 300,000 new cases reported since July 1, led by infections in the 18-34 age group, forcing some states to reimpose restrictions.  The German DAX index led European equity indexes lower, and S&P 500 futures are in the red.

EURUSD dropped from 1.1331 to 1.1260 on the back of the shift in risk sentiment and updated economic forecasts.  The European Commission released its Summer 2020 Economic Forecast.  The title says it all.  “An even deeper recession with wider divergences.”  They predicted the euro area economy would contract 8.7% in 2020, a downgrade from the Spring Forecast of 7.7%.  Profit-taking also weighed on the single currency after it was unable to extend gains above resistance in the 1.1360-70 zone.

GBPUSD  tracked EURUSD moves and bounced in a 1.2464-1.2517 range.

GBPUSD gains are limited due to ongoing EU/UK trade talks and the risk that the UK exits the EU without a trade deal.

GBPUSD short term technicals are bearish below 1.2550.

USDJPY attempted to break above resistance at 107.70, to extend gains to 109.05, but the rally stalled with the modest shift into safe-haven currencies.  Steady US Treasury yields provided some support to the currency pair.

USDCAD is rangebound. Think (and trade) inside the box.

AUDUSD plunged to 0.6924 from 0.6996 after the earlier rally was unable to break above resistance in the 0.7000 area.  The sell-off occurred alongside the shift to negative risk sentiment.  The Reserve Bank of Australia (RBA) left interest rates and monetary policy unchanged, as expected.

USDCAD is rangebound.

It is bid at 1.3510 and offered at 1.3660, with intraday direction determined by broad US dollar movements against the G-10 major currencies.  WTI oil prices are steady around $40.00/barrel, and domestic economic data is mostly ignored.

Yesterday, the Bank of Canada released its quarterly Business Outlook Survey  (BOS) and Canadian survey of Consumer Expectations.  The BOS said “ business sentiment is strongly negative in all regions and sectors due to impacts from the COVID 19 pandemic and the drop in oil prices.  Firms reported that weak demand is reducing both capacity pressures and expectations for price growth.”

Today’s US data is second-tier and includes  JOLTS.

Canada Ivey PMI data is also on tap.

USDCAD Technicals:   The USDCAD technicals are unchanged and directionless inside a 1.3510-1.3660 range.  Think (and trade) inside the box.  A break below 1.3510 targets  1.3430.  A break above 1.3660 puts the 1.3800 area in play.   For today, USDCAD support is at 1.3510 and 1.3470.  Resistance is at  1.3590 and 1.3630. Today’s Range 1.3510-1.3590

Chart: USDCAD 4 hour

Source:  Saxo Bank