June 10, 2020

USDCAD Open (6:00 am) 1.3400-04, Overnight Range: 1.3373-1.3426

•   US May CPI fell 0.1% m/y (forecast 0%)

•   Oil prices drop on profit-taking, and US Shale

•   US dollar opens in NY with gains across the board, and then retreats modestly

•   US Percent change in currency value

•   Source: Saxo Bank/IFXA

FX Recap and outlook:  The US dollar slipped modestly after the May US inflation report was weaker than expected. The US Bureau of Labor Statistics said “Declines in the indexes for motor vehicle insurance, energy, and apparel more than offset increases in food and shelter indexes to result in the monthly decrease in the seasonally adjusted all items index.  A 3.5% drop in the gasoline index didn’t help.

Source: US Bureau of Labor Statistics

The overnight session was slow.  FX traders are cautious while waiting for the Fed meeting, despite a consensus opinion that the meeting will end without any new or material announcements.

The Organisation for Economic Cooperation and Development (OECD) released its June outlook and didn’t pull any punches with their opening line.  The COVID-19 pandemic is a global health crisis without precedent in living memory. It has triggered the most severe economic recession in nearly a century and is causing enormous damage to people’s health, jobs and well-being.”  They predict that if there is only one hit from COVID-19, global GDP will drop 6%.

A second wave of COVID-19 would see global GDP drop by 7.6%.

EURUSD traded in a 1.1332-1.1375 and opened in NY at 1.1360, which suggests renewed US dollar selling following a tame FOMC result.  There wasn’t any Euro area data of note. The EURUSD technicals are bullish above 1.1170 gains are capped by resistance in the 1.1380-1.400 zone.

GBPUSD had a whippy 24 hours.  Prices dropped from 1.2755 in Asia on Monday, touched 1.2620 in Europe, then climbed to 1.2740 by the end of the day.  They opened in NY at 1.2752 after trading in a 1.2707-85 range overnight.  Prices are supported by broad US dollar weakness, although gains may be limited due to ongoing EU/UK trade talk issues.

USDJPY extended this week’s losses, dropping from 107.87 to 108.29 as falling US Treasury yields and concerns ahead of the Fed meeting weighed on prices.  Japan May PPI and Machinery Orders were weaker than expected.

 OECD predicts Canada GDP would fall 8.0% in 2020

AUDUSD and NZDUSD have bounced off their respective lows for the week, but still need to cover more ground to recoup all their losses. These currency pairs are tracking broad US dollar sentiment, with domestic influences put on the back burner.  NZDUSD got a bit of support Monday, after New Zealand announced the country is COVID-19 free and all restrictions have been lifted.

Oil prices dropped from $39.05/b yesterday afternoon to $37.78/b in early NY, following yesterday’s API report that US crude inventories rose 8.42 million barrels in the week ending June 5.  Prices continue to be supported by the Opec production cut extension and by the May uptrend line that comes into play at $35.00/b.

USDCAD price action mirrors that of the commodity currency bloc with prices rising or falling depending upon US dollar sentiment at any time.  OECD predicted Canada GDP would fall 8.0% in 2020 or 9.4% if there is a second outbreak of the coronavirus. They said that an economic rebound would not attain pre-VOVID19 levels until beyond 2021.

USDCAD Technicals:  The intraday technicals are bearish while prices are trading below 1.3460, looking for a break of support at 1.3360 to extend losses to 1.3310.  Longer term, USDCAD is consolidating in a 1.3330-1.3860 trading range.  For today, USDCAD support is at 1.3360 and 1.3310. Resistance is at 1.3440 and 1.3490. Today’s Range 1.3360-1.3460

Chart: USDCAD daily

Source:  Saxo Bank