May 15, 2020

USDCAD open (6:00 am EST) 1.4064-68   Overnight Range 1.4021-1.4109

  • US Retail Sales fall 16.4% m/m in April, ex-auto’s 17.2% m/m
  • Germany and Eurozone GDP reports were weak
  • Trump’s anti-China rhetoric underpins gold
  • USD poised to finish week with gains across the board except against JPY- NZD worst performing currency,

Percent change in value of Currency vs US dollar-Mon. NY open to Fri. NY open

Source: Saxo Bank/IFXA

FX Recap and outlook:  The United States Census Bureau’s Retail Sales report was as grim as expected.  It was their worst-ever drop with the statement noting “many businesses are operating on a limited capacity or have ceased operations completely.”

The news, although expected was a tad disconcerting to traders.  S&P 500 futures flipped from positive to negative, gold prices jumped by $8.0/ounce compared to the open, while FX markets traded with a risk-aversion bias.

FX markets were mixed overnight. The commodity currency bloc (CAD, AUD, NZD) gave back some of yesterday’s gains which occurred following news of an error in the weekly Initial Jobless Claims data. The Department of Labor report said claims increased 2.981 million.  However, Connecticut admitted their data was erroneous.  Instead of reporting an increase of 29,846, they reported 298,680.  Ooops. President Trump stepped up verbal attacks about China’s handling of the COVID-19 outbreak this week

President Trump stepped up verbal attacks about China’s handling of the COVID-19 outbreak this week and mused about” cutting off the whole relationship.”  Some analysts dismissed the talk as “electioneering,” with Trump reverting to the tactics that helped get him elected in 2016. Traders did not make the same distinction and bought US dollar in the event the US/China relationship went pear-shaped.

There were plenty of economic data releases from German and Eurozone sources.  None of it was pretty, but that was expected, and EURUSD drifted in a 1.0794-1.0819 range.  The sentiment is still bearish following Fed Chair Powell’s seemingly rejection of negative interest rates.  German Q1 GDP dropped 1.9% y/y while Eurozone GDP  fell 3.2% y/y.

GBPUSD is languishing near a one-month low. A dovish Bank of England outlook, complete with the possibility of negative rates, and a lack of progress in EU/UK Brexit talks is weighing on prices.  Bloomberg reports the UK is refusing to accept several key conditions the EU is demanding to be met before trade talks will start.  The GBPUSD technicals are bearish below 1.2250 with a break below 1.2140 extending losses to 1.1950.

USDJPY traded softer on the back of mild safe-haven demand for yen ahead of the weekend and due to rising US/China tensions.

AUDUSD and NZUSD are closing out the week on a negative note.  NZDUSD is down 1.8% since Monday’s open mainly due to the RBNZ’s hint that negative interest rates could be a reality. Both currency pairs suffered from renewed “risk-off” sentiment following Trump’s comments about China.

Trump’s comments on interest rates and China upset music to the ears of gold bulls. XAUUSD rose 2.4% this week, including another 0.7% overnight.  Oil traders didn’t seem to care about the renewed Trump/China spat and were content to buy crude on the back of reports of falling supply and expectations for rising demand.

USDCAD has been a tad whippy.  Yesterday’s rally to 1.4133 may have had a lot to due with the 10:00 am option expiry, as prices quickly reversed immediately afterwards.  The annual Bank of Canada Financial System Review didn’t say anything to change the immediate trajectory of USDCAD. In fact the only real driver of the currency pair is US dollar sentiment, although rising oil prices are acting as a drag on USDCAD gains.

Canada is closed Monday

USDCAD technical outlook

The intraday USDCAD technicals are bullish while above 1.40O5 looking for a break of 1.4160 to extend gains to 1.4260.  A break below 1.40054 targets 1.3960 and then 1.3860. The longer term daily chart is bullish above 1.3920.  For today, USDCAD support is at 1.4020 and 1.3990. Resistance is at 1.4130 and 1.4190. Today’s Range 1.4040-1.4140

Chart: USDCAD 4 hour

Source: Saxo Bank