More NAFTA positive news, higher crude crushes USDCAD. Less hawkish than expected rate hike from the Fed hurts USD broadly. Quiet session ahead for data.

Summary

• USDCAD: It was a rough day for USDCAD yesterday as the break lower into North American trading hours never really stopped when the market tested 1.2990-1.3005.  That support level gave way easily as the USD was broadly offered ahead of the FOMC meeting.  Then we saw some more positive NAFTA headlines hit the wires in the form of comments from the US trade representative Lighthizer (he said he believes a lot of progress has been made with NAFTA negotiations and he also said the US will aggressively pursue more free trade deals).  Those headlines along with a lack of chart support until the 1.2920s and a surge in crude oil prices were more excuses for traders to keep selling USDCAD, and so the market marched lower.  There was a bit of volatility following the Fed’s widely telegraphed 25bp rate hike, but when Jerome’s Powell’s took the mic to answer questions from reporters, he disappointed markets (in our opinion) with a less hawkish than expected outlook on monetary policy.  A fourth rate hike this year (which many were speculating about) now appears to be off the table and it was interesting to note Powell downplay the “dot plots” as signals of future monetary policy.  With that, the USD fell apart broadly and USDCAD resumed its downward trend for the day.  Chart support in the 1.2920s was then taken out, which left the market with a nasty closing pattern for the day.  The negative closing pattern has allowed traders to push USDCAD lower still in overnight trade.  A break of chart support at the 1.2870s and a wave of cross selling in early European trade caused USDCAD to plunge quickly to 1.2830, and the market is now trying to regain the 1.2870s as EURUSD backs off its highs for the day.  The North American calendar is light today with the Bank of England rate decision imminent (8amET, but not likely to affect the broader USD) and a speech from BOC Senior Deputy Governor Wilkins at 3pmET on “financial stability”.  All this being said, we think tries to regain its composure today.  If the market can regain the 1.2870s while EUR and AUD maintain a directionless to offered tone, we would not be surprised to see USDCAD uptick back to the low 1.29s.  Should another wave of broad USD selling come in, that would put laser focus on the next chart support at 1.2800-1.2815.  It’s unfortunate we can’t look at CME open interest changes for yesterday (as we normally do for clues as to position changes) as the data yesterday was skewed massively by March contracts going off the board. 

   

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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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