It wasn’t a good night to be short US dollars. Asia FX traders did not have much data to analyse and what they saw they didn’t like. Japan’s May Nikkei Manufacturing PMI index was 52.5, below the 53.6 expected. Australia data was third-tier and mixed.
However, the key driver for US dollar demand was jittery traders. News that the Trump/North Korea summit could be delayed was a factor. So was President Trump’s reply to a question of whether he was pleased with the China Trade talks. He answered “no not really”, but “they are a start.” In addition, many traders are looking for a “hawkish” spin in today’s FOMC minutes.
The US dollar soared in Europe following disappointing economic reports from the Eurozone and UK. Germany, France and Eurozone Manufacturing PMI data were lower than forecast and the April data. EURUSD dropped from the Asia high of 1.1786 to 1.1698 before bouncing to 1.1722 when New York opened.
Sterling got crushed after a weak April inflation data report. UK CPI was 2.4% (forecast 2.5%). PPI and the DCLG Home Price Index missed the mark as well. Easter holidays are getting blamed for the dip in UK inflation. GBPUSD plunged from Asia peak of 1.3440 to 1.3348 and opened near the bottom, this morning.
AUDUSD and NZDUSD retreated in the face of broad US dollar strength.
The Canadian dollar was collateral damage. USDCAD tracked broad US dollar moves and is flirting with the top of its range for the past month. WTI oil prices above $70.00/barrel and expectations of two Bank of Canada rate hikes in 2018 (one of them could occur next week) should limit USDCAD gains.
FX traders may be expecting too much from the release of the FOMC minutes. The May 2 meeting took place before the China/US trade talks took a turn for the better, so it is unlikely that they would be committing to an interest rate policy in the face of such uncertainty.
US Markit PMI reports are due this morning, but FX traders prefer ISM data and usually ignore this series. There isn’t any Canadian data
USDCAD Technical Outlook
The intraday USDCAD technicals are bullish while prices are above 1.2860, looking for a break above 1.2920 to extend gains to 1.2950 and then 1.3010. However, the magnitude of the move suggests that it is over-done and ripe for some consolidation. The countdown to the FOMC minutes may limit top-side gains until after they are releaded. For today, USDCAD support is at 1.2850 and 1.2810. Resistance is at 1.2920 and 1.2950
Today’s Range 1.2820-1.2920