Trump extends March 1st tariff deadline with China

Summary

• USDCAD: Dollar/CAD continued lower to start the week after Friday’s better than expected Canadian Retail Sales data and a slew of dovish Fedspeak ignited a slippery slope of selling that saw traders take out some key support levels on the chart.  Last night’s decision by the Trump administration to extend the March 1st tariff deadline with China is understandably adding to the “risk-on” tone we see in markets so far this morning (stocks, yields, copper, AUD, CNH all up while the broader USD trades lower).  USDCAD gave up support in the 1.3120s, which then ushered in further selling during early European trade.  The negative momentum is now being erased however following another tweet from Trump about “oil prices getting too high”.  April crude oil is selling off to the tune of 2% on the session now, and this has allowed USDCAD to regain support in the 1.3120s.  We think the market now has an excuse to bounce higher, but we think sellers will emerge on strength into the high 1.31s.  This week’s busy calendar features US December Housing Starts (tomorrow); US Durable Goods and Canadian CPI for January (Wednesday); US Q4 GDP, Canadian Raw Material Prices for January, and the Chicago PMI for February (Thursday), and finally the US PCE Index, US February ISM and Canadian Q4/Dec GDP figures on Friday.  Central bank speak will be abundant this week as well, with Fed chairman Powell taking the stage before the Senate tomorrow and the US House of Representatives on Wednesday to present the semi-annual Monetary Policy Report.  The Fed’s Clarida and Bostic will also be making speeches on Thursday.

• EURUSD: Euro/dollar is stair stepping higher this morning, following the broad “risk-on” mood to markets, but the buyers continue to struggle at familiar trend-line resistance in the 1.1360s.  The Chinese yuan traded to new 6 month highs overnight following the tariff extension headlines and the BTP/Bund yield has fallen back below the +270s this morning after Fitch affirmed Italy’s BBB credit rating late Friday, but neither of these developments are doing much to help EURUSD here (which concerns us a little bit).  With the European economic calendar devoid of any major scheduled releases this week, we think EURUSD will focus on Powell’s tone when he speaks to Congress this week.

• GBPUSD: Sterling traders had to digest another weekend of confusing Brexit headlines earlier today, and so the market sits sort of directionless here just shy of chart resistance in the 1.3090s.  Some reports are circulating that Theresa May is considering delaying Brexit by 2 months, but the UK PM has been out this morning denying it.  There are also reports suggesting that while the EU would support an extension of Article 50, they would now want to see Brexit delayed by as much as two years.  More here.  Theresa May has announced that, unfortunately, there will not be another meaningful vote before UK parliament on Brexit this week.  Instead, this has now been pushed back to March 12th.  All this is making for a very challenging GBP trading environment, but we think traders will continue to interpret any “can-kicking” or “delay” headlines as positives for the market.

• AUDUSD: The Aussie has been a natural benefactor of last night’s tweet from Trump about extending the March 1st tariff deadline with China.  Thursday’s bearish reversal candle pattern is now quickly being cancelled, which bodes well for AUDUSD here in our opinion.  We think a close above the 0.7170s will do much to confirm this change in momentum, but we’d like to see further gains above the 0.7220s in short order before turning more positive with our outlook.  There are no major Australian economic announcements scheduled for this week, which will leave the markets focused on trade headlines and Fed chairman Powell's testimony before Congress.

• USDJPY: Dollar/yen continues to hang in there, as Friday’s Fedspeak-driven offer in the USD has been met by a broad “risk-on” tone to global equities this morning.  We think the market still has legs to rally higher should support in the 110.50-60s continue to hold.  Japan reports its January Industrial Production and Retail Trade figures tomorrow night, and its Tokyo CPI data on Thursday night.

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

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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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