- tensions, Coronavirus fears, and US political dysfunction still in focus
Source: Saxo Bank/IFXA Ltd
FX Recap and outlook: The US dollar added to Friday’s gains on Monday, underpinned by reports that the number of new US coronavirus cases are slowing. A robust US Manufacturing PMI data (actual 54.2 vs 51.6 in June), on Monday, helped. Gains were limited because Congress has not passed a new coronavirus relief bill.
Wall Street rallied Monday with the Nasdaq posting another daily record high. Asia equities followed Wall Street’s lead. European bourses are flat to lower, following strong gains on Monday. US equity futures are modestly in the red.
EURUSD closed at 1.1763, Friday, and traded in a 1.1703-1.1806 range, until opening today at 1.1794. Eurozone PMI boosted prices to 1.1780, and US ISM PMI drove prices to the low. EURUSD recouped the losses on the back of political inaction around a new relief bill, narrowing interest rate differentials between the US and Europe, and EURUSD technical which are bullish above 1.1460.
GBPUSD peaked at 1.3163, coinciding with the 11:00 am fix, heavily utilized by portfolio managers to determine FX rebalancing needs. The speculation earlier in the week of heavy GBPUSD demand proved correct. GBPUSD slid to 1.3008 yesterday in NY before recovering to 1.3106 overnight. Prices resumed their slide in NY today.
USDJPY lured bears with a decisive break of 105.50 last week that targeted further losses to 101.50. The trap snapped shut Friday when prices soared to 106.03. Prices bounced between 105.55 and 106.45 yesterday, and they are trading at 106.10 in NY today. A cynic would suggest that last week’s comments from Japan Ministry of Finance officials about “watching yen rates” may have been more than just an observation. Some of the rally may be attributed to hopes that US Republicans and Democrats will reach an agreement for a new relief plan.
AUDUSD dropped from 0.7225 Friday to 0.7080 yesterday as month-end demand for AUDUSD evaporated and the greenback rallied against the majors. However, the AUDUSD retreat stalled at the March uptrend line. The Reserve Bank of Australia helped keep prices steady to firm. They left policy unchanged, but Governor Lowe repeated that the downturn was not as severe as expected and that a recovery was underway.
USDCAD tracked broad US dollar moves, but the price action was muted compared to that of AUDUSD. Canada GDP (Friday) was better than expected but ignored as the gains will still leave Q2 GDP down around 12%. USDCAD tested 1.3450 resistance yesterday, and 1.3350 support overnight. Both levels held. Price action will continue to be dictated by broad US dollar sentiment with traders cautious ahead of Friday’s Canadian and US employment reports.
Canada and US economic calendars are light and won’t matter to FX traders.
USDCAD Technicals: The USDCAD technicals are bearish while prices are below 1.3570 which is the downtrend line from May 23 on a 4 hour chart. That level is guarded by resistance at 1.3470 and while prices are below 1.3470, the focus is for a retest of support at 1.3330. For today, USDCAD support is at 1.3380 and 1.3330. Resistance is at 1.3480 and 1.3530. Today’s Range 1.3370-1.3460
Chart: USDCAD daily
Source: Saxo Bank