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US drops demand for US auto content. USDCAD breaking lower on NAFTA positive sentiment. US FOMC on next 2pmET, presser at 2:30pmET.

CXI March 21st, 2018

Summary

  • USDCAD: It was an eventful overnight session for USDCAD traders as the Globe & Mail published an article saying the US has dropped its demand that all vehicles made in Canadian and Mexico, for export to the US, must contain at least 50% US content.  This NAFTA-positive headline took immediate effect on markets in a quieter than normal Asian session (Japan on holiday), sending USDCAD swiftly lower.  Chart support at 1.3050-60 gave way, as did trend-line support in the 1.3030s.  Cross demand (from EURCAD and GBPCAD) came to the rescue in early European trade, but that fizzled out quickly when the 1.3050-60 level couldn’t be regained, and so USDCAD is trading back near its overnight lows as North American traders walk in.  Support this morning checks in at 1.2990-1.3005.  Resistance is 1.3040, then 1.3050-60.  The broader USD is mixed this morning (lower against EUR, GBP and JPY, but higher against AUD and NZD).  The big event today is the FOMC rate decision at 2pmET followed by Jerome Powell’s press conference at 2:30pmET.  Markets are expecting a 25bp rate hike, and so all eyes will be on Powell’s assessment of the economy and inflation, and the Fed’s “dot plots” (expectations for future rate hikes).  An upbeat tone will likely see a broad USD bid come in, while a cautious tone will likely see the USD go offered.  While it’s impossible to predict what the Powell’s commentary will be like today, we would be on the lookout for a USD positive outcome given strengthening chart technicals for the USD more broadly (against AUD, EUR, JPY, and CNH), given overextended USD short positioning vs. EUR (last week’s COT report), and given the chart on US 10yr yields (which looks poised to resume its rally higher).  A positive USD outcome would likely see USDCAD retrace its overnight losses, while a USD negative outcome would likely see USDCAD attack the low 1.29s where the next support levels lie.

     

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Erik Bregar - Director, FX Trading

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