October 29, 2020
- US dollar extends gains after Q3 GDP climbs 33.1%
- ECB leaves interest rates and policy unchanged
- Global equities soft, US futures mixed
FX Ranges at a Glance
Source: IFXA Ltd/RP
FX Recap and Outlook: The US economy roared back in Q3, rising 33.1% y/y , fully erasing the 31.4% y/y decline in Q2., and beating the forecast for a 31.0% increase. Weekly US jobless claims declined to 751,000, compared to lasts week’s 791,000 result.
The US dollar extend ed overnight gains on the news due to expectations that the American economy will outperform against the other G-10 economies.
It was a nasty day for US equity market bulls yesterday, but there were smiles all around in the bullish US dollar camp. A rash of new coronavirus cases in Europe forced authorities to reimpose lockdown measures.
Beginning Friday, France will close bars, restaurants, and restrict travel until December 1. Germany enacted similar measures. The US reported 80,125 new COVID-19 cases on Wednesday.
The equity market sell-off and FX stampede into safe-havens was triggered by coronavirus news, but there was much more to the story than new lockdown measures. Equity market volumes were lighter than usual ahead of next Tuesday’s US election suggesting the sell-off was exacerbated by poor liquidity. Furthermore, it is month-end, and as of yesterday, the S&P 500 was down 2.7%. That suggests portfolio managers will need to buy US dollars for month-end rebalancing purposes. Some of those trades were likely executed yesterday.
EURUSD is sitting at the bottom of its 1.1722-1.1758 overnight range. Traders ignored better than expected German employment data. The Eurozone economic sentiment survey suggests the economy is already slowing according to ING economics, but the data was ignored. The ECB delivered as expected. They did nothing, leaving interest rates and monetary policy unchanged, promising to “carefully assess incoming information.” The press conference will begin soon. EURUSD technicals are bearish below 1.1785, looking for a test of 1.1660.
GBPUSD traded in a 1.2932-1.3024 range at the low in NY. Prices are tracking broad US dollar moves, due to a lack of EU/UK trade talk updates. Weak UK economic data weighs on prices but hopes for a trade deal, even a watered-down version, is limiting the downside.
USDJPY climbed from 104.33 to 104.50 in Asia, in part due to news the Bank of Japan left monetary policy unchanged. The Bank downgraded current fiscal year growth to -5.5% from the -4.7% they predicted in July. Prices dropped in Europe and are trading at session lows in Toronto on the back of lingering safe-haven demand for yen.
AUDUSD consolidated yesterday’s losses in a 0.7025-0.7075 range. Better than expected NAB Consumer Confidence data lifted prices to the top, but renewed risk aversion knocked the currency pair to the low by the time NY opened. NZDUSD trade similarly, with its gains underpinned by improved Business Outlook survey results.
Oil prices extended yesterday’s slide. WTI peaked at $39.70/barrel on Tuesday and traded at $35.40 in NY. Prices are under pressure to expectations of sharply lower demand, due to the rise in coronavirus cases.
USDCAD soared yesterday and added to it gains overnight and in NY trading. The bulk of the move was due to wide-spread safe-haven demand for US dollars, but free-falling oil prices, and the dovish Bank of Canada policy outlook helped. BoC Governor Tiff Macklem proclaimed to the world that Canadian interest rates would be low for a long time. Deputy Prime Minister and Finance Minister Chrystia Freeland said in a speech on Wednesday “our (economic) policies have a heart, to be sure. But they are driven just as powerfully by a prudent, dispassionate economic calculus. are driven just as powerfully by a prudent, dispassionate economic calculus.
Nevertheless, USDCAD direction is mostly determined by broad US dollar sentiment, and for now, that sentiment is to buy US dollars.
USDCAD Technicals: The intraday technicals are bullish. The break above 1.3260 led to a test of end of March downtrend line in the 1.3330-40 area, which if broken will extend gains to 1.3390, a level that corresponds to the 23.6% Fibonacci retracement of the March-September range. A decisive break of 1.3390 puts 1.3630 in play. For today, USDCAD support is at 1.3290 and 1.3250. Resistance is at 1.3350 and 1.3390. Today’s Range 1.3290-1.3390
Chart: USDCAD daily with Fibonacci retracement levels noted
Source: Saxo Bank
FX open (6:00 am EDT) High, Low, and previous close
Source: Saxo Bank