Source: Saxo Bank/IFXA
FX Recap and outlook: The US dollar is playing defence this morning, posting small losses against the G-10 majors, except against CAD. Today, at least, the Canadian dollar is the Donald Trump of FX-it is always around, but no one likes it.
The EU Summit budget talks and discussions around the Germany/France COVID-19 Relief Fund proposal have got the markets attention. There is a lot of opposition to providing a bail-out, as some of the more frugal (and prosperous) regions are reluctant to shore up their wasteful neighbours. Denmark, Sweden, Austria, and the Netherlands are opposed to sharing debt liability. That suggests there will not be a Mario Draghi “Whatever it takes moment” today, and no deal will be announced. EURUSD should suffer. Yesterday’s ECB meeting didn’t offer anything new. EURUSD inched higher in Asia and Europe, rising from 1.1379 to 1.1423.
GBPUSD traded in a narrow 1.2530-70 range and is poised to end the week as the worst-performing G-10 major currency against the US dollar, losing 0.50% since Monday’s NY open. Traders are awaiting an update on the EU/UK trade talks from this week. It is expected sometime today or on the weekend.
GBPUSD technicals are bearish below 1.2610, looking for a break of 1.2530 to extend losses to 1.2440.
USDJPY is rangebound inside a 106.60-107.40 band this week. Rising US coronavirus cases and US/China tensions are capping gains, while higher equity markets, steady US bond prices, and broad US dollar weakness limit losses.
AUDUSD and NZDUSD, like USDCAD, continue to track US dollar moves, which are primarily driven by Wall Street performance.
Oil prices are steady. Opec announced that they would end the 2.2 million barrel/day emergency production cut on August 1. The news was expected. However, ongoing coronavirus concerns and a slower than expected global economic recovery suggest crude demand may not exceed supply anytime soon.
USDCAD was largely ignored overnight. It rose marginally, despite the US dollar giving ground against the rest of the majors (except GBP). Perhaps, it is a delayed reaction to Wednesday’s Bank of Canada policy statement and Monetary Policy Report. The BoC said “will maintain current level of policy rate until inflation objective is achieved, “ which may not be until 2023. It implies that Canada’s recovery from the pandemic will take longer than previously thought.
Today’s US data, which includes Preliminary Michigan Consumer Sentiment (forecast 79 vs previous 78.1) will be overshadowed by Wall Street and any headlines from the EU Summit.
USDCAD Technicals: Yesterday’s break above 1.3545 snapped a minor downtrend from July 14, and drove prices to resistance at 1.2590. A break above 1.2590 points to another test of 1.3660. For today, USDCAD support is at 1.3550 and 1.3500. Resistance is at 1.3590 and 1.3660. Today’s Range 1.3550-1.3630.
Chart: USDCAD 4 hour
Source: Saxo Bank