August 14, 2020
- Euro area tensions clip EURUSD rally
- Saturday’s China/US meeting could cause fireworks
- CAD poised to close week as best performing currency: JPY, AUD,NZD, fall.
Source: Saxo Bank/IFXA Ltd
FX Recap and outlook: US July Retail Sales rose a disappointing 1.2%. Analysts were forecasting a gain of 1.9%. In contrast, Canadian Manufacturing Shipments data was stellar, rising a record 20.7%. USDCAD traders ignored the results as they are just “payback” from the April-May decline, and are still below pre-COVID-19 levels.
USDCAD failed to break support in the 1.3200 area yesterday but bears still have hope as the subsequent bounce stalled at 1.3252. Price action may get choppy in the 1.3250 area today as there are reportedly $1.5 billion in option contracts expiring at 10:00 am..
FX traders hoping to get direction from equity markets were disappointed. Asia stocks were uninspiring and directionless. European equity markets knew the path: it was down. S&P futures followed suit, which suggests Wall Street will trade lower, as well.
Traders are unnerved by political tension in Belarus because of fears of a rigged election, and elevated anxieties between Turkey and Greece. Both countries are NATO members, but the European Union is supporting Greece.
Saturday’s US and China meeting between Trade Representative Robert Lighthizer and Vice Premier Liu He could spark fireworks. It is supposed to review the Phase 1 Trade deal, but recent US actions including the attempt to nationalize Tik Tok and WeChat, suggest discussions may be acrimonious.
EURUSD rallied in Asia, climbing from 1.1783 to 1.1826, before changing direction, and is trading at 1.1820 after the Retail Sales data. Eurozone Q2 GDP dropped 12.1% as expected, and employment fell 2.6% q/q. Ongoing issues in Belarus and elevated tensions from Turkey’s incursion into Greek territorial waters, limited EURUSD gains.
GBPUSD is showing no signs of ill-effects from heightened quarantine rules in the country. The UK will enforce 14-day quarantine rules on travellers arriving from France, the Netherlands, Monaco, Malta, Turks and Caicos and Aruba. GBPUSD traded quietly in a 1.3250-82 range until NY opened. Prices extended gains to 1.3099 on the back of EURGBP selling.
USDJPY continued to consolidate gains from earlier in the week in a 106.68-107.73 range. The currency pair is at the bottom of the band, in part because US Treasury yields have slipped from their peak.
AUDUSD traded sideways in a 0.7134-0.7162 band. Prices bounced from the bottom after RBA Governor Philip Lowe said negative interest rates were unlikely for Australia and that although he would like a lower AUD, he cannot say the currency is overvalued. NZDUSD lagged AUDUSD gains due to AUDNZD demand.
USDCAD Technicals: The intraday technicals are bearish below 1.3260 and looking for a decisive break below 1.3200, which if broken opens the door to steep losses. A break above 1.3260 suggests more consolidation in a 1.3200-1.3330 band. The weekly chart shows USDCAD in a well-defined downtrend channel, with significant long-term uptrend line resistance in the 1.3160-1.3200 zone. For today, USDCAD support is at 1.3200 and 1.3190. Resistance is at 1.3260 and 1.3330. Today’s Range 1.3200-1.3300
Chart: USDCAD weekly
Source: Saxo Bank
FX open (NY 6:00 am EDT) High, Low, and previous close
Source: Saxo Bank