The US government shutdown on Saturday when the Republicans and Democrats could not agree on a funding bill. Shutdown is a misnomer-Its business as usual for essential workers and a lot of inconvenience for the private sector. Members of Congress continue to get paid,
Asia FX markets reacted to the news by selling US dollars, albeit, not aggressively. USDJPY gapped lower at the start of trading, falling from 110.79 at Friday’s close to 110.54. The losses were recouped by the European open.
AUDUSD and NZDUSD dropped in early Asia trading, but the move was short-lived Both currency pairs rallied, supported by broad US dollar weakness.
EURUSD popped to 1.2273 from Friday’s close of 1.2219 on the US government shut down news and then retreated to 1.2215 by the European open. News that Germany’s tow major political parties (CDU/SPF) were negotiation terms for a coalition underpinned the single currency and took EURUSD back to 1.2260.
Sterling traded near its recent top, supported by Brexit optimism and the weak US dollar, A lack of major economic data in Asia or Europe contributed to the lack of FX trading direction.
WTI oil prices drifted in a narrow $63.33-$63.66 range with traders digesting the price gains since the beginning of the year. Traders did not react to the small drop in the Baker-Hughs rig count (Actual 747 vs previous 752) or comments From Saudi Arabia that Opec and Russia have pledged to collaborate on production into 2019.
USDCAD was sidelined in overnight trading. The dovish rate hike and Nafta concerns have underpinned the US dollar.
There isn’t any data from Canada or the US being released today leaving FX traders to focus on the US government shutdown, the World Economic Forum in Davos and the start of Round 6 of the Nafta negotiations in Montreal.
A Reuters story on January 19 said that only 4 out of 45 economists survey believe that Nafta gets terminated. That suggests that Nafta risks may be grossly understated in the current level of USDCAD which should limitdownside moves.
USDCAD Technical outlook:
USDCAD has been locked in a 1.2350-1.2915 range since the end of September with 1.2630 acting as a pivot. A break above 1.2630 suggests a retest of 1.2915 while below 1.2630 keeps 1.2350 in play. The intraday technicals are bullish while prices are above 1.2450, looking for a break of 1.2490 to lead to a test of 1.2550 A break below 1.2450 will see a test of 1.2410 and 1.2380. For today, USDCAD support is at 1.2450 and 1.2410. Resistance is at 1.2490 and 1.2610
Today’s Range 1.2450-1.2520