USDCAD open 1.3485-89, Overnight Range: 1.3449-1.3535,
Source: Saxo Bank/IFXA Ltd
FX Recap and outlook: Canada May Retail Sales rose 18.7% m/m below expectations for a 20% gain, while Retail Sales, ex-auto’s rose 10.6% m/m, compared to the consensus forecast for a 12% rise. Statistics Canada noted that even after today’s gain, Retail Sales are still 20% below February levels.
EU leaders are bumping elbows, and proclaiming what wonderful statesmen they are. Not only did the 27 EU leaders manage to agree on a €1.824 trillion, 2021-2027 budget, €750 billion of it was the highly touted COVID-19 Relief Fund.
The Relief Fund is watered down, consisting of €390 billion in grants rather than the €500 billion proposed initially, and €360 billion of low-interest loans.
The EU added a tax on non-recycled plastic which goes directly to the EU and not member countries. There are plans to tax on imported goods from countries with lower carbon emissions than the EU and maybe a tax on financial transactions. Nothing boosts a struggling economy like more taxes.
EURUSD jumped to 1.1469 from 1.1436 on the back of the news, then dropped to 1.1424. The rally resumed in early NY trading with EURUSD touching 1.4555 as of 6:25 am ET.
Some analysts expect further EURUSD gains. They suggest that the run-up to the EU budget/debt deal acted as a drag on EURUSD upside. With that out of the way, the single currency is free to rally, as US problems come to the forefront. Those problems include stupidly high budget deficits, with more stimulus spending in the pipeline, and extremely low US interest rates which make US assets less attractive. The resurgence of US COVID-19 cases, and the upcoming election, are other reasons to avoid the greenback.
Other analysts expect a sharp, steep drop in EURUSD, suggesting all of Europe’s “good news” is priced into the currency, and short EUR positions are stretched.
The intraday EURUSD technicals are bullish above 1.1430 looking for a break above 1.1500. A move below 1.1420 sets the stage for a drop to 1.1305.
GBPUSD rallied with the improved risk sentiment tone, surging Euro area equity indexes, and hopes of progress in UK/EU trade talks, which start anew next week. Plans for another US stimulus package also supported prices, as did hopes for a COVID-19 vaccine, which led to broad US dollar selling.
USDJPY traded sideways in a 107.14-36 range but is mildly bid above 106.60, looking for further gains toward 108.30.
AUDUSD and NZDUSD jumped aboard the rally wagon. AUDUSD was supported by the RBA minutes. The minutes said that there was “no case for intervening in FX markets due to “limited effectiveness,” and when the rate is ”broadly aligned with its fundamentals.”
Oil and Gold prices climbed on the back of US dollar weakness. WTI gains are capped by concerns that supply will continue to outstrip demand.
USDCAD went along for the ride. Prices dropped to 1.3474 in early NY trading after peaking at 1.3535 overnight, with bearish US dollar sentiment and positive risk sentiment driving the down move.
There are not any important US economic reports on tap. However, S&P futures are up 0.68% suggesting Wall Street will enjoy a positive open.
USDCAD Technicals: The intraday USDCAD technicals are bearish. The break below 1.3510 targets 1.340, and if that is broken, will lead to 1.3330. However, Bollinger Band and RSI’s indicate USDCAD is oversold. For today, USDCAD support is at 1.3460 and 1.3430. Resistance is at 1.3520 and 1.3570. Today’s Range 1.3430-1.3510
Chart: USDCAD daily
Source: Saxo Bank