May 9, 2019

USDCAD Open (6:00 am EDT) 1.3477-81   Overnight Range 1.3473-1.3494

“They broke the deal.  They broke the deal “That’s how President Trump justified plans to raise tariffs on $200 billion Chinese imports into the US at the stroke of midnight today, at a campaign rally in Florida on Wednesday.

That’s not what Asia and European equity market traders wanted to hear. Asia’s leading equity indices tumbled. (except Australia’s S&P/ASX 200) The Nikkei 225 fell 0.91%, and China’s Shanghai Shenzhen CSI 300 lost 1.89%.  European bourses didn’t fare a whole lot better.  Germany’s DAX is down 0.81%, and US equity futures point to a negative open on Wall Street.

FX markets rolled into risk aversion mode.  Traders bought Japanese yen and Swiss francs but not aggressively.  Nevertheless, those two currency pairs opened in New York with small gains compared to yesterday’s close.  AUDUSD was the biggest loser due to the increased US/China trade tensions. CAD, EUR, GBP and NZD are unchanged at today’s open.

Round 10 of the US/China trade talks begin today.  President Trump may have set the tone, but China answered the bell.  They promised to retaliate saying “China deeply regrets it and if the US tariffs are implemented, China will have to take necessary countermeasures.”

Trump is unlikely to delay the increase in China tariffs, in part because he would be afraid of looking weak.  That suggests additional risk aversion trading is in the cards and the commodity currency bloc is at risk for further weakness while JPY and CHF will rally.

The trade talks will be front and center today, but there are a few US economic reports to provide early morning trading fodder. In addition, North Korea is reportedly throwing missiles around again.  US April PPI (forecast 2.3% y/y) and weekly Jobless Claims (forecast 220,00) data are on tap.  The Trade balance may be the most critical release for obvious reasons.  The Trade deficit is expected to widen to 50.2 billion from 49.4 billion.

Canada Trade and New Housing Price Index data are also available but likely to be ignored by USDCAD traders. 

USDCAD Technical Outlook

The USDCAD techncials are unchanged from yesterday.  USDCAD is stuck in a tight 1.3390-1.3490 range and has been since May 1.  Prices are pressuring topside resistance and looking for a test of  1.3520.  Above 1.3520, it is clear sailing until 1.3650. Only a decisive break below 1.3290 would negate the topside pressure. For today, USDCAD support is at 1.3440 and 1.3410.  Resistance 1.3490 and 1.3520.  Today’s Range 1.3440-1.3520

Chart: USDCAD 4 hour