Source: US Department of Labor

May 7, 2020

USDCAD open (6:00 am EST) 1.4075-79   Overnight Range 1.4066-1.4171

  • Initial Jobless claims 3.2 million compared to 3.8 million last week
  • BoE predicts 25% drop in Q2 GDP, 14% drop for 2020 GDP
  • Norway’s Norges Bank cuts rates to 0
  • Upside surprise in China exports for April
  • US dollar gives back some of yesterday’s gains

Percent change in Currency value against US dollar, NY close (5:00 pm EDT) to NY open (6:00 am EDT)

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 Source: Saxo Bank/IFXA

FX Recap and outlook:  Today’s US jobless claims report was close enough to expectations to keep the US dollar steady, oil prices firm, S&P futures in the “green.” Overnight, traders had a lot of “bank-speak,” and economic data to chew on overnight which made for a whippy FX session.

The Bank of England left QE and interest rates unchanged at 0.1%, then provided a rather dour outlook for the UK economy.  The BoE predicted a 25% drop in Q2 GDP and a 14% drop for the entire year.  The interest rate vote was unanimous, but two members voted to increase QE by £100 million immediately.  GBPUSD bopped and weaved around the announcement, rising from 1.2325 to 1.2417, then dropping to 1.2330, where it sits post-Claims data.

Norway’s Norges Bank surprised markets and cut their policy rate to zero, saying the move was necessitated by plunging domestic economic activity.

EURUSD was rather “ho-hum” bouncing in a narrow 1.0779-1.0815 range.  Weak German March Industrial Production data and on-going concerns around the legality of the ECB’s previous QE actions capped gains from EURGBP demand.

USDJPY rallied throughout the overnight session, climbing from 106.00 to 106.52.  Better than expected China April export data (Actual 3.5% y/y vs forecast -15.7% y/y) boosted risk sentiment.  In addition, US 10-year Treasury yields were steady around 0.70%.

AUDUSD rallied aggressively on the back of a 15.1% jump in March exports, which boosted the Australia trade surplus to a record $10.602 million.  The better than expected China export data exacerbated the move.  Lock-down easing measures added to the positive sentiment.  AUD rose from an Asia low of 0.6380 to 0.6470 in NY trading this morning.  NZDUSD lagged Aussie gains due to a subdued Inflation Expectations report.

Oil traders got excited with the China export news and bought WTI on hopes, that China crude demand would surge.  WTI is up 12% in NY trading, compared to the Asia low of $23.44/barrel.

USDCAD peaked at 1.4171 in Asia, before plunging to 1.4066 in NY today.  USDCAD sank under the wave of positive risk sentiment from following the China data and got an added boost from the spike in oil prices.

It is shaping up to be a “risk-positive” day as European stock indexes are higher and S&P futures pointing to a strong open on Wall Street.  Today’s jobless claims data supports the trend.  However, Friday’s US and Canadian employment reports should ensure current ranges stay intact.

USDCAD technical outlook:

The intraday USDCAD technicals are bullish above 1.4060, looking for a break above 1.4170 to extend gains to 1.4250.  A break below 1.4060 targets 1.4005.  For today, USDCAD support is at 1.4060 and 1.4005.  Resistance is at 1.4120 and 1.4170. Today’s Range 1.4020-1.4120

Chart: USDCAD daily, noting uptrend is still intact

Source: Saxo Bank