No one needs to ask Tarzan “What drums say.” President Trump has already translated. Yesterday afternoon he tweeted “The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one-way street!”
The Wall Street Journal, citing “unnamed sources” said that the US would place restrictions on Chinese investments and block new technology exports to China.
The news unsettled FX markets, leading to mild risk aversion trades, although the Peoples Bank of China, 50 bps cut in the Reserve Ration Requirement, helped to ease the fears. Only the Japanese yen managed to post a gain against the greenback by this morning’s US dollar open. Global equity indices are in the red, and Wall Street equity futures suggest a negative open today.
USDCAD spiked to 1.3380 from 1.3260 on Friday, following the weaker than expected Canadian inflation and Retail Sales reports. The move was entirely erased by the end of the day, and USDCAD closed at 1.3261. The economic data was affected by lousy weather, but economists and analysts suggest that the data and ongoing trade issues may make it difficult for the Bank of Canada to raise rates on July 12. The odds are about 50/50.
Opec agreed to increase production up to 1 million barrels per day. WTI oil climbed to $69.33/barrel in the wake of the news, in part due to speculators covering short trades. Prices have retreated to $68.47/b in New York trading which has helped to limit USDCAD gains.
Overnight, EURUSD bounced inside a 1.1629-1.1671 range. The single currency is undermined by Italian political issues, divergent US/EU interest rate spreads and rising trade tensions. The German IFO survey was in line with forecasts. GBPUSD tracked EURUSD moves, trading in a 1.3222-70 range.
This morning’s US data (New Home Sales, Dallas Fed Manufacturing Business index and Chicago Fed National Activity index) won’t have any impact on FX markets. There aren’t any Canadian data.
USDCAD Technical Outlook
USDCAD is in an uptrend while prices are above 1.3270 looking for a break of 1.3320 to extend gains to 1.3380 and then 1.3450. A move below 1.3270 would revisit support at 1.3205 and suggest a period of 1.3205-1.3380 consolidation.
Today’s Range 1.3270-1.3330