April 28, 2020
USDCAD open (6:00 am EST) 1.3953-57 Overnight Range 1.3948-1.4071
- Month-end portfolio rebalancing flows, oil price concerns, fuel USDCAD selling
- Markets cautious ahead of FOMC, Wednesday and ECB, Thursday
- USD opens with losses against G-10
Chart: Currency gain/loss (%) against the US dollar from NY close to NY open (6:00 EST)
Source: Saxo Bank/IFXA
FX Recap and outlook:
USDCAD rallied from 1.4037 in Asia to 1.4071 at the European open and then plunged to 1.3948, mirroring WTI price action. The currency pair likely suffered from pre-month-end, portfolio rebalancing US dollar pressure. US equity performance in April has been stellar. The S&P 500 is up about 10% since the March 31 close, which suggests portfolio managers will need to sell US dollars. Also, the break of support in the 1.3990-1.4005 triggered stop-loss selling.
The following charts shows the tight correlation between USDCAD and WTI price movements overnight.
The US dollar is on the defensive against the major G-10 currencies, undermined by optimism towards an economic recovery as countries start to ease coronavirus restrictions. Many US states are already easing COVID-19 restrictions. They do not seem to be concerned that the number of confirmed cases is still US rising. (988,469 as of today). New Zealand, France, Spain, and Italy are doing the same, perhaps setting the stage for COVID-19, Round 2.
GBPUSD rallied in Europe rising to 1.2505 from 1.2406, with traders ignoring an ugly CBI Distributive Trades report. The report measures short term trends in the UK retail and wholesale distribution sector, and it dropped 0.55% in April compared to -3% in March. It is all coronavirus related, which is why the data was dismissed. The GBPUSD gains in the absence of any other compelling news or data is further evidence of pre-month end portfolio rebalancing flows.
EURUSD drifted higher in the wake of GBPUSD gains. Sweden’s Riksbank left interest rates unchanged at 0% and said that a “rate cut would not be a very meaningful way to stimulate the economy. That contradicts the current ECB policy, which will be front and center on Thursday.
USDJPY sank on the back of broad US dollar weakness, falling from 107.33 to 106.62 in early NY trading.
US Treasury yields were steady to firmer and the Nikkei closed nearly unchanged.
AUDUSD outperformed NZDUSD after a Westpac Bank economist forecast that the RBNZ would chop interest rates into negative territory this year, even as the New Zealand government is lauded for reopening their economy.
WTI oil prices bounced off the overnight low of $10.08/barrel to reach $12.65/b before settling down at $11.65/b in early NY trading. Traders continue to be spooked over short term storage issues. Opec oil supply rose over 2 million BPD in April, which didn’t help sentiment.
US Consumer Confidence, and Case-Shiller Home Price data are on tap today, but FX action will be driven by month-end flows and headlines about the economy reopening.
USDCAD technical outlook:
The intraday USDCAD technicals are bearish below 1.4030 looking for a break below 1.3930 to target the 61.8% Fibonacci retracement level of the March range, which is 1.3870. For today, USDCAD support is at 1.3930 and 1.3870. Resistance is at 1.3990 and 1.4040. Today’s Range 1.3910-1.4010
Chart: USDCAD daily
Source: Saxo Bank