May 21, 2020

USDCAD open (6:00 am EDT) 1.3925-29, Overnight Range 1.3893-1.3945

Percent change in currency value against US dollar-NY close to NY open (6:00 am EDT)

A screenshot of a cell phone

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Source: Saxo Bank/IFXA

FX Recap and outlook:  The US dollar retreat on the back of improved risk sentiment came to a screeching halt overnight.  President Trump’s “Blame China for COVID-19” election strategy came to the forefront overnight after he took a thinly veiled shot at Xi Jinping, tweeting:  “Spokesman speaks stupidly on behalf of China, trying desperately to deflect the pain and carnage that their country spread throughout the world. Its disinformation and propaganda attack on the United States and Europe is a disgrace…” ….It all comes from the top. They could have easily stopped the plague, but they didn’t!” 

His re-election strategy was evident with his follow-up tweet “China is on a massive disinformation campaign because they are desperate to have Sleepy Joe Biden win the presidential race so they can continue to rip-off the United States, as they have done for decades, until I came along!”

China is also irked at the US for having the audacity to acknowledge Taiwan.  Yesterday, Secretary of State Mike Pompeo sent a congratulatory message to the Chinese President for winning a second term.  China’s foreign Ministry said Pompeo’s message “severely damaged peace and stability.”

The tweets knocked the major Asian equity indices lower, and sparked demand for US dollars. European equity indexes followed Asia’s lead, and dropped led by a 1.33% drop in Germany’s DAX.  Weak Eurozone PMI data contributed to the selling pressure.

Today’s US weekly jobless claims result was bang on the consensus forecast which did not do much for FX or equity markets.  S&P futures point to a negative open on Wall Street

EURUSD traded with a negative bias, in a narrow range, falling from 1.0979 at the NY close to 1.0953 in Europe.  The negative risk sentiment stemming from the China/US spat and weak Markit Manufacturing PMI data (actual 40.6) weighed on prices.  The losses were reversed in early NY trading and EURUSD climbed to 1.1006, after today’s weekly jobless claims report.

GBPUSD dropped to 1.2187 from 1.2238 in Asia on the back of the poor risk sentiment.  Prices remained near the Asia lows until late in the European morning, when they rebounded to 1.2245. Traders dismissed weak UK Manufacturing PMI data (actual 27.8) as stale.

USDJPY traded in a 107.53-84 range.  Prices were undermined by a dip in US Treasury yields, and mild safe-haven demand for yen.

AUDUSD and NZDUSD dropped on the back of broad demand for US dollars. Comments by RBA Governor Philp Lowe saying the prospect of negative rates are still extraordinarily unlikely, didn’t have any impact.

Oil prices continue to be supported by yesterdays EIA report that US crude inventories dropped nearly   5.0 million barrels.  WTI oil has climbed from $25.71/b last Thursday to $34.13/b today.

USDCAD rebounded from yesterday’s 1.3870 low and climbed to 1.3945 overnight.  Bank of Canada Deputy Governor Timothy Lane warned that the post-COVID-19 recovery would see weaker supply and demand, but with depressed inflation levels.  USDCAD gains are slowed by rising crude prices.

USDCAD technical outlook

The intraday technicals are bearish while prices are below 1.3950, looking for a decisive break of support in the 1.3830-50 area to shift the focus to the 1.3440 level where there is a “gap: on the daily chart. A break above 1.3950 would target 1.4120.  For today, USDCAD support is at 1.3880 and 1.3840.  Resistance is at 1.3950 and 1.4005.  Today’s range 1.3850-1.3930

Chart: USDCAD 1 hour

Source: Saxo Bank