January 6, 2020
USDCAD open 1.2967-71 (6:00 am EST) Overnight Range 1.1.2966-1.2984
It is the first full week of trading for 2020, and the FX liquidity pool is being replenished as traders return to their desks following the seasonal holidays. Markets have a lot to digest. President Trump and Irani officials are trading insults and threats which kept crude oil prices at an eight-month high and drove gold prices to a near eight-year high. The news overshadowed the release of the FOMC minutes, which continued to suggest that the Fed is on hold for the foreseeable future. Good news on the US/China trade front is offset by tariff threats between the US and France. Chinese officials are planning to travel to Washington to sign the Phase 1 trade deal, signalling a thaw in US/China trade animosity. France is picking up the slack. French officials are threatening to retaliate to any new US tariffs levied to protest a planned French digital tax.
Risk aversion trading was evident at the Asia open, but that aversion dissipated. The traditional safe-haven currencies, Japanese yen, and Swiss franc are only marginally stronger compared to Friday’s closing levels.
FX Market Snapshot
Change in currency value against the US dollar from NY close to NY open (6:00 am EST)
Source: Saxo Bank/IFXA
New York opened with European equity indices in the red, gold and oil prices below their overnight peaks. EURUSD is in demand, powered better-than-expected by German and Eurozone data. German Retail Sales rose 2.8% y/y in November, well above the 1.0% forecast. Eurozone December Services PMI, Sentix Investor Confidence and PPI data also beat estimates and supported the gains. The EURUSD technicals are bullish while prices are above 1.1115 with the break above 1.1180, suggesting further gains to 1.1250.
GBPUSD traded sideways at the bottom end of its overnight range in Asia and then soared when UK Markit Services PMI data beat forecasts. The Index rose to 50 from 49 in November which is really, just a “glass-half-full” reading but it was enough to raise hopes for a pick-up in UK growth this year. Prices were also supported by short-covering and broad US dollar weakness. GBPUSD technicals are bullish while prices are above 1.3060, looking for a break above 1.3206 to extend gains to 1.3280.
A wave of risk aversion selling washed over USDJPY at the Asia open, knocking prices from 108.10 to 107.77. Prices inched higher for the rest of the session and consolidated around the 107.90-108.00 area in Europe. Negative risk sentiment was tempered by Iran’s failure to escalate the crisis from the US drone attack. Nevertheless, they are well below Friday’s 108.59 peak, with a drop in US 10-year Treasury yields to 1.78%. USDJPY short term technicals are bearish. The break below the four-month uptrend line at 108.60, followed by the move below 108.20, risks further losses to 107.20 on a breach of 107.80.
Risk-aversion fears knocked the Antipodean currencies lower at the start of the Asia session. AUDUSD tested support at 0.6930, which held, and prices rebounded in Europe, rising from 0.6930 to 0.6957. NZDUSD traded in a similar fashion. AUDUSD technicals are bullish above 0.6620-30, looking for another break of 0.6990 to lead to a test of 0.7080.
Oil prices rallied again but retreated from their overnight peak in Europe. WTI technicals are bullish above $61.40/b with additional short-term uptrend support at $63.40, looking for a break of $64.70 to open the door to a test of resistance at $66.30.
Gold bugs have swarmed all over the precious metal in response to the elevated geopolitical tensions. XAUUSD is near an eight-year peak, with prices currently at $1,577.02/ounce in early New York trading. A break above $1,615.000 suggests further gains to $1,690.00. For today, support is at $1,550.00/oz.
This morning’s Canadian Raw Materials and Industrial Price data were better than expected but didn’t have any impact on the Loonie.
USDCAD repelled a risk-aversion rally at the Asia open and then probed support in the 1.2960 area, which held. High oil and gold prices, broad US dollar weakness, and steady Bank of Canada monetary policy undermined USDCAD. Traders are looking ahead to Friday when the US and Canadian employment reports are released.
USDCAD Technical Outlook
The USDCAD technicals are bearish below 1.3270, but failure to break below support in the 1.2930-60 area, followed by a break above 1.3010 risks a rebound to 1.3100. The long-term uptrend line from September 2017 comes into play in the 1.2940-60 zone which includes the 50% Fibonacci retracement level of the 2017 range. For today, USDCAD support is at 1.2960 and 1.2940. Resistance is at 1.2990 and 1.3030. Today’s Range 1.2950-1.3000.
Chart: USDCAD daily
Source: Saxo Bank