USDCAD Overnight Range 1.2817-1.2870
FX traders inherited a bout of risk aversion sentiment when the North America session started. Aversion soon reverted to attraction when the US Retail Sales report was released. (May Retail Sales Actual 0.5% vs. forecast 0.3%, ex-autos 0.4% vs. forecast 0.3%, m/m). The April data was unrevised.
Prior to the data, the outlook for the day was a tad less rosy. The US dollar gained while equities and oil declined in jittery overseas markets. The lack of top tier US economic releases coupled with an absence of any sort of guidance from Fed speakers left markets searching for something to fret about.
They found it in the UK in the form of the referendum that asks British voters “Should the United Kingdom remain a member of the European Union or leave the European Union”? This referendum was announced on February 21, 2016 so its not like markets should be surprised that it is happening. Numerous polls show support for the “Remain” and “Leave” camps virtually tied around 50%. Last nights news that UK bookmakers have raised the odds for “leave” to 39% kicked off the overnight flurry of hand-wringing.
In Asia, the Nikkei shed another 1.00% which helped drive USDJPY to 105.63 before rallying. USDJPY was very choppy in Europe, bouncing constantly between 105.63 and 106.00 and that’s where it is sitting as of 6:45 am PST. Australian economic data was mixed and didn’t do anything to stem the AUDUSD selling from the shift to risk aversion. Kiwi followed Aussie lower.
GBPUSD declined throughout the Asia and European sessions due to Brexit concerns while ignoring a slew of UK data including CPI. EURUSD traded sideways during the Asia session and collapsed in Europe, falling from 1.1290 to 1.1205 as New York traders got started. It has since recovered slightly. Risk aversion sentiment and pre-FOMC positioning drove that move.
Yesterday’s decline in WTI oil prices stalled in Asia but resumed in Europe with WTI dropping to $48.01/barrel. Traders initially ignored Monday’s Opec report that said they were pumping crude at levels below the average forecast for demand but got on board when the IEA monthly report seemed to confirm the Opec view. Opec and IEA predict that the world oil market will be more balanced in the second half of 2016. WTI has climbed to $48.64 from $48.02/barrel.
The Canadian dollar suffered from a 1-2 punch. Falling oil prices in a risk aversion environment drove USDCAD through resistance at 1.2820 to a test of resistance at 1.2870 before profit taking and a slight bounce in WTI prices led to a retracement. That changed with rising oil prices and the strong Retail Sales report. USDCAD dropped below minor support at 1.2840 and tested the 1.2810 uptrend line from Friday, which held.
USDCAD technical outlook
The intraday USDCAD technicals are bullish while trading above 1.2810 which represents a prior resistance level and the uptrend line from Friday’s low. The break of resistance in the 1.2835- 1.2840 area, extended gains to 1.2880 which held. A move below 1.2800-10 would negate the immediate upside pressure and lead back to 1.2740 For today, USDCAD support is at 1.2810 and 1.2770. Resistance is at 1.2880 and 1.2920.
Chart USDCAD 1 hour.