Mad Magazine’s Alfred E Neuman and FX traders are saying “What-me worry?’ There are rising geopolitical tensions and risks to global economic growth from the US/China trade war, US/EU trade issues, US/Canada tariffs and tariff threats, EU/UK Brexit, China’s creeping annexation of the South China Sea, China/US spat over arms sales to Taiwan, the risk of another oil price shock, Iran’s threats to various Middle East nations and Russia’s activities in Syria.
Traders appear to have dismissed those risks and risks from the possibility of a more hawkish than expected FOMC statement and dot-plot forecast on Wednesday. Instead, the US dollar has been sold against the Euro, Sterling and Canadian dollar since the beginning of the month while the Swiss franc and antipodean currencies are almost unchanged. The Japanese yen rallied, boosted by rising Treasury yields.
That must be because “this time it’s different.” President Trump has succeeded in “making America great again.” US equities will continue to drive higher, posting record gain, even as interest rates rise, and global trade is disrupted by surging oil prices and tit-for-tat tariffs.
Or maybe not. President Trump addresses the United Nations today leaving markets exposed to “headline risk.” The FOMC will likely raise rates tomorrow and indicate another increase in December. The CME Fedwatch tool indicates the odds for a December move are at 76.2%, suggesting there is plenty of room for the dollar to rally on a hawkish statement.
The overnight FX markets were rather quiet. AUDUSD suffered on US/China trade woes while USDJPY consolidated gains near the top of its recent range.
In Europe, ECB Chief Economist Peter Praet said that accommodation is still needed, but EURUSD inched higher anyway, supported by optimism around the Italian budget. GBPUSD stayed firm despite negative Brexit headlines.
The Canadian dollar traded sideways. Prime Minister Trudeau said it was likely that informal Nafta talks would continue on the sidelines at the UN, although US officials reportedly turned down Trudeau’s request to meet with Trump, saying he was too busy.
US Case-Shiller Home Price data is due today and expected to be slightly softer than last months report. There isn’t any Canadian data, leaving UISDCAD direction at the mercy of broad US dollar moves.
USDCAD Technical Outlook
The intraday USDCAD technicals are bullish above 1.2910, looking for a break above 1.2980 to extend gains to 1.3020. A move below 1.2910 would target key support at 1.2880. For today, USDCAD support is at 1.2910 and 1.2880. Resistance is at 1.2980 and 1.3020
Today’s Range 1.2920-1.2980