Snap-back in oil prices prevents USDCAD from breaking higher

Summary

• USDCAD: Dollar is trading back on the defensive this morning after crude oil prices snapped back most of their losses in afternoon trade yesterday.  This positive momentum carried over into the overnight session, with chart resistance in the March contract giving way in the 52.50s.  This coincided with USDCAD rejecting the 1.3310s once again after yesterday’s failure to overcome the chart resistance level, and this invited the sellers right back in.  Oil traders appear to be gung-ho today after reports that Saudi Arabia expects to reduce March production levels to 9.8M bpd, or nearly 500k bpd lower than the amount it originally pledged in the coordinated 2019 OPEC+ production cut announced in December.  OPEC’s Monthly Oil Market Report, which was just released, is causing the buyers to pause just a bit now as the cartel revises its 2019 demand forecasts lower by 240k bpd to 30.6M, and raises it estimates for non-OPEC output growth.  More here.  Some USDCAD buyers are trying to bottom fish here as the somewhat bearish OPEC report gets digested, but traders have not yet pulled the market back above chart support in the 1.3260s, which was lost in the last few hours.  Today’s calendar will be devoid of any major economic data, but Fed chairman Powell will be speaking around the 12:45pmET at the Hope Enterprise Rural Policy Forum.  We think oil prices will set the tone for today’s USDCAD price action yet again, with any pullbacks to the $53 level being USDCAD supportive and any extension of the rally to the $54 mark likely adding weight to the current USDCAD offered tone.

• EURUSD: Euro/dollar traders put up a fight this morning at trend-line support in the 1.1270s.  The market mildly bounced off this level yesterday afternoon and into Asian trade overnight, but the level came under attack after the ECB’s Weidmann admitted the European economic weakness has been a bit more protracted then initially thought.  Buyers stepped up though and defended the chart support level, and we would argue that today’s weaker tone to USDCNH and the BTP/Bund spread gave added comfort to their volition.  Some upside momentum here potentially opens up a move to near-term chart resistance in the 1.1320s, but we think the market might need to get fed more positive European and/or negative US data here.

• GBPUSD: Sterling is bouncing confidently higher into the NY open this morning after it followed EURUSD lower earlier today.  The driver appears to be comments from BoE governor Carney, as he reiterates the central bank’s desire to modestly tighten monetary policy over time (provided economic expansion continues).  This shouldn’t come as a surprise to markets following last week’s BoE press conference, but traders are buying the headlines at this hour.  Chart resistance comes in at the 1.2880s (yesterday’s mild support level turned resistance after the market broke down below it).  Theresa May spoke before UK parliament about a half hour before Carney spoke and promised MPs a final vote on Brexit, but not before she secures changes to the Irish backstop.  More here.  We think sterling sellers remain in charge here sub 1.2890.

• AUDUSD: The Aussie is getting a breather this morning as the decline in USDCNH helps AUDUSD recover back above the 0.7080s support level it lost yesterday.  We haven’t seen any major headlines out of China today to explain the Yuan strength, but we would note the market’s swift rejection of chart resistance in the 6.8080s.  Australia’s NAB survey came out overnight and the January Conditions index read (+4) was slightly better than the December figure of +3.  We think could drift higher today if EURUSD continues higher, but latter is still lacking solid momentum at this hour.  Tonight sees the release of the Westpac Consumer Confidence data at 6:30pmET.

• USDJPY: Dollar/yen is pulling back off chart resistance in the 110.50-60s this morning after traders ran the market higher yesterday.  Some broad USD selling and a slight tweak to the BOJ’s JGB purchases in the 10-25yr window appear to be the culprits.  More here.  That being said, the S&Ps have a strong bid tone to them this morning following headlines that lawmakers reached a tentative deal to avert another partial government shutdown, and so think USDJPY will be supported on dips.

Tune in @EBCTradeDesk for more real-time market coverage.

Market Analysis Charts

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Charts: TWS Workspace

About the Author

Erik Bregar - Director, FX Trading

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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