The Canadian dollar got smashed yesterday and did not stage much of a recovery overnight. President Trump fired Secretary of State Rex Tillerson and replaced him with CIA Director Mike Pompeo. The White House dysfunction spooked traders into risk aversion trades. USDCAD soared, rising from 1.2830 to 1.2947. A little while later, Bank of Canada Governor fueled added USDCAD gains when he delivered a “cautious” speech, saying that Canada has a lot of room to grow before generating higher inflation.

Late yesterday, the US Department of Commerce announced an additional 22.% increase in countervailing duties on uncoated groundwood paper, (newsprint) affecting $1.2 billion of exports.  The new tariffs raise the risk that of NAFTA termination which keeps USDCAD supported.

AUDUSD recovered all of Tuesday’s losses overnight following higher Australian consumer confidence and better than expected Industrial Production data from China (Actual 7.2%, y/y vs forecast 6.1%)  AUDUSD rallied from 0.7853 to 0.7893.   Kiwiw climbed in Asia, rising from 0.7325 to 0.7352 but reversed the move in Europe.

USDJPY traded sideways in a narrow range as traders digested the latest White House antics.

EURUSD drifted lower, undermined by weaker than expected Eurozone Industrial Production for January.(Actual -1.0% vs forecast -0.4%, m/m)  A decline in energy production gets the blame. A trio of ECB speakers (Draghi, Praet and Coeure) delivered dovish remarks dampening enthusiasm for a speedy policy normalization.  EURUSD fell from 1.2411 to 1.2362 at the New York open.

GBPUSD consolidated yesterday’s gains from UK Chancellor of the Exchequer’s upgraded growth forecasts and traded in a 1.3942-1.3994 band

WTI oil prices ignored the small increase in US crude inventories reported by API at the end of the day on Tuesday (Actual 1.154 m/b) and inched higher.  They got an added boost from the rise in China Industrial Production.  WTI Rose from $60.64 to $61.04/b.

US Februart Retail Sales missed the mark (Actual -01.5m m/m vs forecast 0.3%, ex-autos 0.2% vs forecast 0.1%, m/m).  It appears, Trump’s tax cuts haven’t trickled down to consumer spending, yet. A tick higher in Producer Price Index took any sting out of the Retail Sales data.

FX markets are vulnerable to a new rash of US tariffs aimed at China, targeting $60 billion of Chinese tech and consumer goods. China’s response could lead to a stampede into risk aversion trades.

USDCAD Technical Outlook

The intraday technicals are bullish following yesterday’s break above 1.2880 and 1.2920.  A break above resistance in the 1.2990-1.3015 area targets 1.3190.  However, a failure at 1.3015 would risk a retest of 1.2810.  For today, USDCAD support is at 1.2940 and 1.2910.  Resistance is at 1.2990, 1.3015 and 1.3060.

Today’s Range: 1.2940-1.3015