May 12, 2020

USDCAD open (6:00 am EST) 1.4005-08   Overnight Range 1.4007-1.4063

• US April CPI falls 0.8%, as predicted
• New COVID-19 cases in Wuhan and South Korea raise fears of “second wave.”
• China irritation of “Washington’s denunciation” could jeopardize Phase 1 trade deal
• Bank of England Deputy governor warns about risk of negative interest rates
• US dollar hangs on to Monday’s gains overnight but slides in early NY trading

Traders Percent change in Currency value against US dollar, Monday NY open to Friday NY open (6:00 am EDT)

Source: Saxo Bank/IFXA

FX Recap and outlook:  FX markets are skittish.  They are eager for global economies to re-open, and eager to buy the sold-called risk assets, but at the same time fear a second wave of COVID-19, restrictions are eased to quickly.

China spooked markets when it announced a ban on some meat imports from Australia.  Only a cynic would suggest the ban had anything to do with Australia’s call for an inquiry into the COVID-19 pandemic.  Beijing accused Australia of spearheading a “malicious campaign to frame and incriminate them.”

US April CPI results did not provide any traction to FX markets.  The data was expected and ignored.  Instead, traders are looking ahead to speeches by Minneapolis Fed President Neel Kashkari, and Philadelphia Fed President Patrick Harker, which may be risk friendly.

EURUSD dropped from 1.0813 to 1.0784 in early Asia trading on a jolt of risk aversion, after the China news, but prices quickly recovered and EURUSD touched 1.0834 in NY trading.

GBPUSD is trading at the top of its 1.2289-1.2358 overnight range.  Traders appear to be unphased by BoE Deputy Governor Ben Broadbent’s warning that UK rates could go negative.  The BoE overnight rate is 0.10% and Mr Broadbent said: “The committee are certainly prepared to do what is necessary to meet our remit with risks still to the downside.  Yes, it is quite possible that more monetary easing will be needed at the time.”

USDJPY traded sideways torn between downside risks due to rising concerns about a second-wave of COVID-19 cases, and upside risks from firming US Treasury yields.  The Nikkei closed with a small loss.

AUDUSD and NZDUSD were slammed in Asia after China banned some meat imports from Australia.  However, prices quickly recovered and both currency pairs recouped all of their losses, and then some. Prices are tracking S&P Futures which flipped into positive territory in early NY trading

WTI oil returned to yesterday’s peak level of $25.48/b.  Prices were supported by comments from Saudi Arabia that they would cut June crude production by 1.0 million barrels/day, to 7.5 million.  However, gains are limited due to oversupply and soft demand.

USDCAD is tracking broad US dollar sentiment and that sentiment has been bearish since mid-morning in Europe.  USDCAD dropped below the overnight low of 1.4007 in early NY trading and touched 1.3979.  The technicals are bearish but the fundamentals are bullish because of expectations the Canadian recovery will lag that of the US and the antipodean currencies.

USDCAD technical outlook

The short-term USDCAD turned bearish again, with this mornings move below support at 1.4005.  A decisive break below 1.3970 targets a retest of 1.3850.  A break above 1.4060 is needed to shift the focus to 1.4150. A break below 1.3860 opens the door to 1.3440.   For today, USDCAD support is at 1.3960 and 1.3910.  Resistance is at 1.4040 and 1.4090. Today’s Range 1.3910-1.3990

Chart: USDCAD 4 hour

Source: Saxo Bank