February 20, 2020

USDCAD open (6:00 am EST) 1.3331-35     Overnight Range 1.3319-1.3368

USDCAD resistance in the 1.3150-60 area is crumbling, battered by domestic economic growth risks, rising Bank of Canada rate cut concerns, and the coronavirus (COVID-19) fueled plunge in oil prices.

Rising fears of a COVID-19 pandemic overshadowed today’s US economic data dump. The results were a mixed bag Q4 GDP was 2.1% y/y as expected, Jobless claims were a touch softer than forecast, while Durable Goods Orders for January were only down 0.2% rather than the 1.5% expected.  FX traders ignored the news.

Markets are not getting any reprieve from coronavirus concerns. The major Asia equity indexes closed in the red, and European bourses are melting down.  The German DAX has lost 2.74% as of 6:00 am PST, and the UK FTSE 100 index dropped 2.80%.  US equity futures suggest another ugly day for Wall Street.

President Trump said, about the coronavirus, “the risk to the American people remains very low.” His remarks didn’t do anything to assuage fears for a widening outbreak.

FX traders staunched the bleeding from earlier safe-haven currency demand.  The US dollar extended yesterday’s retreat and opened with losses across the board except against GDP.

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:  EURUSD added to this week’s gains, rising from 1.0881 in Asia to 1.0947 in New York trading.  The rally that kicked off last Thursday has managed to recoup 50% of February’s losses as traders revise their Fed interest rate outlook.  Analysts are pencilling in two rate cuts in 2020 with a nearly 50/50 chance the first cut happens March 18. Short EURUSD positions getting stopped out exaggerated the gains. Modestly better-than-expected, but still soft, Eurozone Consumer Confidence, Services Sentiment, Industrial Confidence, and Business Climate data, underpinned prices.  The intraday EURUSD technicals are bullish above 1.0860 with a break above 1.0970 targeting 1.1020.

GBPUSD is suffering from concerns that UK/EU trade talks will be a tad hostile.  The negotiating mandate, released today, says that the UK will not abide by European Union rules and regulations and that the transition period will not be extended beyond December 2020.  GBPUSD plunged from 1.2945 to 1.2862. Comments by Bank of England Deputy Governor Jon Cunliffe forecasting that inflation would be slightly above the 2.0% target helped to limit the downside.

USDJPY chopped about in a 109.86-110.45 range and opened at 110.05.  Traders are torn between selling USDJPY as a coronavirus safe-haven or buying USDJPY on Fed rate cut speculation. The safe-haven aspect of the currency pair is questionable as Japan plans to close all schools for most of March, as a coronavirus precaution.

AUDUSD and NZDUSD bounced off recent lows mostly due to profit-taking, as the US dollar retreats against the other major currencies.

Oil prices continued to slide. The WTI breach of support at $48.20/barrel risks further losses to the 2019 low of $42.40.  The combination of rising US crude inventories and heightened expectations for sharply lower global crude demand are weighing on prices.

USDCAD didn’t participate in the FX major currency rebound.  That may be due to the risk of a domestic economic slow-down from the on-going rail blockade and fears that Canada is a hostile investing environment under the Trudeau government.  Furthermore, if USDCAD was being sold as a US dollar proxy earlier, it stands to reason that when the greenback suffers, so would the Loonie.  Canada’s Current Account data will not be a factor for traders.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish while trading above 1.3290. The currency pair is probing the top end of the major resistance zone in the 1.3330-50 area, which if broken will extend gains to 1.3420.  A move above 1.3420 suggests a retest of the June 2109 peak of 1.3565. For today, USDCAD support is at 1.3310 and 1.3280.  Resistance is at 1.3360 and 1.3420. Today’s range 1.3310-1.3390

Chart: USDCAD daily

Source: Saxo Bank