USDCAD downtrend broken after Canada reports weaker than expected Q4 GDP

Summary

• USDCAD: Dollar/CAD is drifting higher to start the week after Friday’s massive rally saw the market close above trend-line resistance in the 1.3260-70s.  The surprisingly weak Q4 Canadian GDP numbers reported on Friday, and the explosive buying that ensued, has now effectively broken the downward trend in USDCAD in our opinion.  We think the market has a good chance of taking another leg higher this week should the Bank of Canada sound cautious when updating markets on its latest interest rate decision on Wednesday.  Today’s calendar doesn’t feature any notable economic releases, so expect USDCAD to trade off the broader USD tone and crude prices.  Oil traders are trying to regain the 56.20 level on the April WTI contract this morning after Friday’s disappointing February US ISM figure spooked markets and created a bearish outside day pattern on the daily chart.  We think USDCAD could come off a bit here should oil trade higher, but we think buyers will be found at chart support (formally chart resistance) in the 1.3260-70s.

• EURUSD: Euro/dollar is trading lower this morning as the mass exodus out of gold continues.  The precious metal selling started on Friday right after the weaker than expected US ISM figures were announced, and dragged EURUSD swiftly back down below key trend-line support in the 1.1380s.  While this gold move feels sell stop driven to us, it symbolizes broad demand for the USD and so we’re not surprised to see EURUSD hunting for buyers at the next trend-line support level in the 1.1320-30s.  This week’s key feature for EUR traders is the ECB meeting on Thursday, where traders are expecting Mario Draghi to lower European growth forecasts.  We’ll also get the February Markit Services PMI data out of Italy and Germany tomorrow, along with Italy’s Q4 GDP figures.  The BTP/Bund spread to trading 5-6bp higher this morning and USDCNH is trying to reclaim the 6.70 handle after gapping lower on the Sunday open; both of which are moderate EURUSD negatives at this hour.

• GBPUSD: Sterling is trading with a mixed tone as we enter the NY session this morning.  Friday’s gold-inspired selling saw traders attack chart support in the low 1.32s, but this level was regained just barely into the close.  The market gapped open yesterday evening, filled it during European trade today, and is now trying to once again regain the 1.3210s.  The UK’s Market Construction PMI for February missed expectations this morning, coming in at 49.5 vs 50.3.  Tomorrow brings the Markit Services PMI for February and a speech from Bank of England governor Carney around 10:35amET.  The market appears thirsty for more Brexit headlines here as the UK and EU continue to set more meetings.  

• AUDUSD: The Aussie is inching higher into NY trade this morning, but traders are struggling with a mess of chart resistance in the 0.7090-0.7110 zone.  Australia reported some mixed economic data overnight, which is not helping with the directionless tone.  Building Permit data for January beat expectations (2.5% vs 0%), but Q4 Inventories missed estimates (-0.2% QoQ vs +0.3%) and will likely factor into analysts lowering Australia’s Q4 GDP estimate for Tuesday night.  The Reserve Bank of Australia announces its latest decision on interest rates tonight at 10:30pmET.  While no changes are anticipated from market participants, expect traders to scrutinize any updates to the monetary policy outlook (which recently turned a bit more negative).

• USDJPY: Dollar/yen continues to hover just shy of trend-line resistance at the 112.00 level this morning as global equities digest an article from the WSJ over the weekend that suggests that the US and China “are in the final stages of completed a trade deal”.   The S&Ps are trading +10pts at this hour, but US yields are pulling back a bit after last week’s breakout to the upside.  While the chart technicals for USDJPY continue to look good here, we think the market might pause here and look for buyers.  Support today lies in the 111.60s.

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

Market Analysis Charts

USD/CAD Daily Chart

USD/CAD Hourly Chart

April Crude Oil Daily Chart

EUR/USD Daily Chart

EUR/USD Hourly Chart

USD/CNH Daily Chart

GBP/USD Daily Chart

GBP/USD Hourly Chart

EUR/GBP Daily Chart

AUD/USD Daily Chart

AUD/USD Hourly Chart

May Copper Daily Chart

USD/JPY Daily Chart

USD/JPY Hourly Chart

March S&P 500 Daily

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.

Interested in creating a custom foreign exchange trading plan? Contact Us or call CXI's trading desk directly at 1-833-572-8933.