June 20, 2019
USDCAD Open (6:00 EDT) 1.3198-01 Overnight Range 1.3171-1.3284
The Fed signaled that US rates were going lower and the US dollar got spanked. It started falling when the policy statement was released, continued through the press conference and then accelerated when Asia and European traders got into the act.
Fed Chair Powell blamed the dovish shift on the re-emergence of crosscurrents which looked like they were fading at the May 1 meeting. Crosscurrents are really just another word for China, as the deterioration in the trade picture played a significant role in the Feds outlook. The market is pricing two rate cuts this year which Goldman Sachs predicts will occur in July and September. St Louis Fed President James Bullard didn’t want to wait. He voted to cut rates immediately but was the one to do so.
USDCAD plunged one the one-two-three punch of a dovish Fed, strong domestic data, and surging oil prices. Canada CPI beat forecasts rising 2.1% y/y in May (forecast 2.0%) with Core CPI rising 2.4% (forecast 2.0%) WTI oil climbed to $55.59/barrel overnight from $51.50/b on Tuesday, a 7.9% gain. Oil prices got an added boost from news that a US military drone was shot down in the Strait of Hormuz. What would happen to an Iranian military drone flying around in the Florida Straits? The price drop broke through key support at 1.3270 and 1.3240, triggered stop-loss selling and hanging a target on the 1.2990 level.
In Asia, AUDUSD and NZDUSD rallied. AUDUSD ignored comments from RBA Governor Low suggested rates could be cut further in order to spur economic growth.
USDJPY dropped from 108.30 to 107.48 just before Europe opened. Prices drifted higher and opened in New York at before the Fed statement to 107.81. The Bank of Japan policy meeting was a non-event. They left rates and their forward guidance unchanged.
EURUSD rallied on the back of the dovish Fed. However, further gains may be a struggle because the ECB is on the dovish bandwagon, and it is contemplating new quantitative easing measures. ECB officials were chirping about their “readiness to act” to support economic growth.
GBPUSD joined the rally party, with a nasty short-squeeze, rising from 1.2542 yesterday to 1.2724 by today’s New York open. Traders ignored the mixed to soft Retail Sales report. The Bank of England left rates unchanged, as widely expected. Traders are more concerned about the outcome of the Conservative party leadership race and its impact on Brexit.
Yesterday’s Fed policy statement and press conference is a tough act to follow. Today’s US data, which includes Jobless Claims, and Philadelphia Fed Manufacturing Index data will have little to zero lasting impact on FX markets.
USDCAD Technical Outlook
The intraday and short-term USDCAD technicals are bearish. The break below support at 1.3340 and 1.3250 target 1.3125 and then the 1.2990. The 1.3000 level is the 76.4% Fibonacci retracement of the October 2018- January 2019 range. For today, USDCAD is oversold and likely to consolidate its losses in a 1.3140-1.3240 range
Chart: USDCAD daily