February 10, 2020

USDCAD open (6:00 am EST) 1.3292-96   Overnight Range 1.3290-1.3311

The week began with economic data taking a back seat to coronavirus concerns and low oil prices. Chinese inflation data rose 1.4% m/m in January, well above the 0.8% m/m forecast.  Markets were spooked by headlines that the coronavirus death toll exceeded SARS, but took some comfort from news that the pace of new infections is dropping.  China saying it would spend at least $10 billion to fight the outbreak.  The UK upped the coronavirus ante, declaring it a “serious and imminent threat to public health.”

Asia and European equity indexes are lower as are US Treasury yields and oil prices are down. FX markets were very blasé.  The US dollar opened in New York with small losses against the commodity currency bloc and GBP, while the others were unchanged.

Chart: Currency gain/loss (%) against the US dollar from New York close to New York open

Source: IFXA/Saxo Bank

FX Recap and Outlook:   Falling oil prices, and President Trump’s proposed $4.8 trillion budget, will provide FX traders with a distraction from the lack of actionable economic data available today. Fed Chair Jerome Powell’s semi-annual address to Congress starts Tuesday. The report has already been released and paints a picture of a US economy that is growing moderately with a strong labour market supportive financial conditions, and steady, but below-target inflation.  

EURUSD broke support at 1.1000 on February 6 on the strength of robust US non-manufacturing PMI and better than expected ADP jobs data. Prices continued to drop following Friday’s NFP report. EURUSD continues to suffer from the underperformance of the Eurozone economy compared to the US, but the latest slide stalled at 1.0944. The intraday EURUSD technicals are bearish below 1.0980 with a break of support at 1.0940 targeting 1.0880.

GBPUSD suffered from fears of antagonistic EU and UK trade talks last week but clawed back some of those losses overnight, rising from 1.2873 to 1.2830, while ignoring the UK virus warning. Traders are looking ahead to Tuesday when a slew of UK economic data is released. 

The data is expected to be soft, led by flat Q4 GDP growth (forecast 0% vs previous 0.4% q/q)). GBPUSD is in a downtrend below 1.2940 targeting 1.2820.

USDJPY is bid while prices are above the February hourly uptrend line which comes into play at 109.60. 

The outlook for steady Fed monetary policy, US economic growth outperformance, and last weeks uptick in US Treasury yields are supporting prices. A decisive break of 110.00 will target 110.60 and then 112.20. A break below 109.60 suggests further losses to 108.50.

AUDUSD is under pressure and but major support in the 0.6640 area held and prices climbed to 0.6706 when Europe opened. They have eased to 0.6692 in New York trading. Near term gains above 0.6740 are unlikely due to the risk that the Reserve Bank of Australia cuts interest rates, because of the negative effect of the coronavirus on the Chinese economy and Australian exports

NZDUSD is suffering from the same issues as AUDUSD but with the added fear the Reserve Bank of New Zealand surprises markets on Wednesday and cuts the overnight cash rate (OCR) by 0.25%. Despite that, NZDUSD inched higher, alongside AUDUSD gains

WTI oil prices are soft and hovering just above key $50.00/barrel support, which is significant, because it is a “round number,” and was previously a “double top.” Crude prices continue to suffer from the reportedly 25% drop in Chinese oil demand since the coronavirus hit, and Russia’s reluctance to agree to an Opec plan for a further 600,000 barrel production cut trimmed hopes for an emergency Opec meeting.

USDCAD is supported ever since the Bank of Canada surprised traders by adopting a dovish monetary policy stance. Friday’s Canadian jobs data, at first glance, was better than expected. It knocked USDCAD lower, but just briefly. One of the reasons was that more than half of the new jobs were public sector. The US NFP report was mixed. Jobs were strong but average hourly earnings declined while the unemployment rate ticked higher to a still-low 3.6%. USDCAD direction will continue to track broad US dollar sentiment.

The US data calendar is empty. Canada releases January Housing Starts and December Building Permits data, which will likely be ignored by traders.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish. above 1.3270 but upside momentum has stalled at resistance in the 1.3320 area.  A break below 1.3270 targets 1.3230 and then 1.3180.  A break above 1.3320 puts 1.3380 in play.  For today, USDCAD support is at 1.3270 and 1.3230.  Resistance is at1.3310 and 1.3330.  Today’s Range 1.3270-1.3310

Chart: USDCAD hourly

Source: Saxo Bank