October 7, 2019

USDCAD open 1.3318-22 (6:00 am EDT)     Overnight Range 1.3306-1.3329

This week started without the drama seen recently. There are plenty of things for traders to worry about, coming down the pipe, but overnight markets were tame. China returns from holiday tomorrow, and the FOMC minutes are released Wednesday, and the US/China trade talks begin Thursday.

The US dollar pared small losses from Friday and opened on with a somewhat mild risk averse bias.

FX Market Snapshot

Change in currency value against the US dollar from Tues.  New York open to Wed. New York open

Friday’s US nonfarm payrolls report was soft enough to boost the odds of an October 30 rate cut to 100%, as per the CME Fedwatch tool.  Fed Chair Jerome Powell’s speech on Friday was ambiguous at best. He said the US economy as “being in a good place.” Then he expressed concerns, saying “ While we believe our strategy and tools have been and remain effective, the U.S. economy, like other advanced economies around the world, is facing some longer-term challenges—from low growth, low inflation, and low interest rates,” adding the Fed is “examining strategies” that will help it achieve its inflation goal of 2%.”  He speaks again on Tuesday and Wednesday

EURUSD traded with a bearish bias falling from 1.0989 to 1.0963, before bouncing back to 1.0977 before the New York open. Weak German Factory Orders data weighed on the single currency.

GBPUSD bounced around in a 1.2289-1.2335 range. Soft House Prices data undermined the currency, but Brexit is the real driver.  UK Prime Minister is adamant that Britain has a new deal, or will leave the EU October 31, despite a law saying he must ask for an extension.

USDJPY trade sideways. Sellers were seen due to a rise in risk aversion, but buyers emerged when US Treasury yields climbed from 1.505% to 1.527%

Markets don’t have high hopes for a breakthrough in the China/US trade talks that start Thursday which put downside pressure on AUDUSD and NZDUSD.

Oil traders do not appear as pessimistic about the trade talks as the antipodean currencies. WTI rose from $52.61 to $53.43/barrel, but the downtrend from September 17 is intact while prices are below $53.50/b.

USDCAD is still directionally challenged. Last week’s GDP release was a mixed bag, but for many economists, still more positive than negative. None of the economic reports gave the Bank of Canada enough ammunition to justify cutting interest rates. However, global developments are key. The major central banks chopping rates willy-nilly, can the BoC afford to stay on the sidelines?

USDCAD Technical View

USDCAD remains rangebound.  The 1.3200-1.3340 band that has contained price movements since September 12, is still intact.  The intraday technicals are bullish above 1.3305, looking for a break above 1.3340 to test resistance at 1.3380.  A break above 1.3380 targets 1.3550.  A move below 1.3300 re-targets 1.3240 and then 1.3200.  Today’s Range 1.3270-1.3330

Chart: USDCAD 1 day

Source: Saxo Bank