December 3, 2019

USDCAD open 1.3297-01 (6:00 am EST)    Overnight range 1.3285-1.3308

The US responded to the French government’s digital tax in typical Trump fashion-threatening tariffs of about $2.4 billion worth. The American’s claim the digital tax “discriminates against U.S. digital companies, such as Google, Apple, Facebook, and Amazon.” The tariffs, if levied, would hit cheese, sparkling wine, handbags, and beauty products. French officials said the EU would retaliate although Germany, whose automakers are under threat of 25% tariffs, may not agree.

President Trump hinted that the China/Trade talks could drag on until after the 2020 US elections. He said, “In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right.”

The US dollar dropped across the board yesterday, following a slightly weaker ISM Manufacturing report (actual 48.1 vs forecast 49.2) Traders saw the results as evidence the US economy is slowing, and took profit on stale long US dollar positions. Moderate US selling pressure continued overnight.

FX Market Snapshot

Change in currency value against the US dollar from NY close to NY  open

Source:  Saxo Bank/IFXA

President Trump is doing his part to devalue the greenback. Last night he tweeted “Manufacturers are being held back by the strong Dollar, which is being propped up by the ridiculous policies of the Federal Reserve – Which has called interest rates and quantitative tightening wrong from the first days of Jay Powell!” Then added “The Fed should lower rates (there is almost no inflation) and loosen, making us competitive with other nations, and manufacturing will SOAR! Dollar is very strong relative to others.” FX traders ignored him.

EURUSD traded sideways in Asia but dropped from 1.1086 to 1.1064 just as New York entered the fray, undermined by Trump’s comments about delaying a China trade deal until after the US elections in 2020. The prospect of a Euro area trade war with the US may have also tempered EURUSD demand. Eurozone PPI rose 0.1% in October. (forecast 0.0%)

GBPUSD broke above resistance in the 1.2950 area when Europe started. It triggered a wave of stop-loss buying which hit 1.2993 where is trading, in New York. Prices were supported when Markit Construction PMI came in at 45.3 compared to 44.5 that was forecast.  Broad US dollar weakness and polls showing the Conservatives widening their lead over Labour contributed to the gains. A decisive break above 1.3000 targets 1.3200.

 USDJPY plunged from 109.62 to 108.90 yesterday after the ISM Manufacturing PMI miss and safe-haven demand sparked by the latest flurry of tariffs. Prices consolidated those losses overnight in a 108.83-109.19, and they opened in New York at the bottom after Trump suggested delaying the China trade talks. Prices were also pressured by the drop in 10-year US Treasury yields from 1.845% to 1.791%.

 AUDUSD outperformed, rising from 0.6816 to 0.6860 after the RBA left the Overnight Cash Rate (OCR) unchanged at 0.75%. Analysts suggested the statement was a tad more hawkish than expected because they appeared content with a ‘wait and see” approach.

 USDCAD is the “odd man out.” The currency pair was merely a bystander yesterday and overnight as traders largely ignored US/China trade news, oil price fluctuations, US economic data, and Trump tweets. Traders are biding their time until tomorrow’s Bank of Canada policy monetary policy decision and Governor Poloz’s press conference.

 There are not nay Canadian or US economic releases of note available today, leaving FX direction to be dictated by Wall Street and trade headlines.

USDCAD Technical View

The intraday technicals are unchanged.   USDCAD is bullish above 1.3280 looking for a break above 1.3310 to extend gains to 1.3350. A break above 1.3350 targets 1.3440 and then 1.3550. A break below 1.3270 will lead to a test of 1.3230. For today, USDCAD support is at 1.3270 and 1.3250. Resistance is at 1.3310 and 1.3350. Today’s Range 1.3280-1.3350

Chart:  USDCAD  30 minute

Source: Saxo Bank