Technicals and cross demand helping USDCAD despite broad USD selling. USDCNH breaks down, helping EURUSD break higher. Quiet, holiday shortened week ahead for data.

Summary

• USDCAD: Dollar/CAD is surprisingly bid as the broader USD is getting hammered to start the week.  Some of this, we feel, is due to Friday’s impressive NY close.  Despite higher than expected Canadian CPI figures and a poor technical chart setup going into the London close on Friday, USDCAD traders managed to get the market back above the key 1.2870 level as the week closed out.  There’s also huge demand for EURCAD and GBPCAD to start the week as traders break those two cross markets out of consolidation patterns.  While the broader USD move is not driving USDCAD today, it’s still worthy of attention because of the key technical breakdowns that have just occurred.  USDCNH has broken lower after a week of teasing traders with a bearish symmetrical triangle pattern (perhaps the launch of CNY oil futures trading overnight and some easing of US/China trade war rhetoric was the catalyst).  EURUSD has broken higher as a result, taking out key trend-line resistance in the 1.2360s at the same time.  Even sterling has broken higher and is now threatening to attack the January highs.  It’s going to be a quiet, holiday shortened week this week in terms of economic data.  The only items are 2^nd tier releases: US Consumer Confidence tomorrow, US Trade Balance and the 3^rd read of Q4 GDP on Wednesday, and core US PCE and Canadian GDP for January on Thursday.  Today we’ll get some Fed speakers (Dudley, Mester and Quarles) but that’s about it.  We think USDCAD retains its bid for the time being as there’s been no let up in cross demand yet.  Resistance at 1.2890 is capping at this hour while 1.2870 supports.  Should resistance give way, we would not be surprised to see a move back up to 1.2925.  Should support give way, it would likely coincide with EURCAD and GBPCAD selling, triggering a move to 1.2825.  Friday’s COT report from the CFTC showed the CAD futures market become a touch shorter USDCAD going into the Fed meeting last week (which was a good move in retrospect), but the report doesn’t yet include the 50k drop in open interest due to the expiry of March contracts last week.  In other words, we still don’t know yet which segment of traders didn’t roll their positions to June.

   

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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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