The Canadian dollar has ranged from 1.3050-1.3120, based on announcements from Saudi Arabia, it said it is considering additional measures against Canada amid reports it plans to unload its holdings of Canadian stocks and bonds as a dispute over women’s rights activists intensifies. The CAD hit the 1.3120 level based on this, it was reported the Saudi Arabia central bank and state pension funds have instructed their overseas asset managers to dispose of Canadian assets starting Tuesday. The CAD has recovered, but it would have likely fallen anyway given that oil prices have dropped even with the lower crude inventory numbers. The trade war between the U.S. and China continues, China has stated that it will retaliate with 25% tariffs on another $16 billion worth of imports from the U.S. China may be able to hike tariffs, but in 2017 the U.S. goods trade deficit with was $375.0 billion, so who would be the loser of this war?
Expect further volatility on the USDCAD.
90 day simple moving average: 1.2971
Support Resistance
USDCAD 1.3055, 1.3049, 1.3041 1.3071, 1.3075, 1.3083
XE Market Analysis: North America – Aug 08, 2018
USD-CAD jumped back above 1.3000 after printing a near two-month low at 1.2962 yesterday. The stalling of the recent oil price rebound, coupled with the evident strong prevailing fundamentals of the U.S. economy, which is underpinning expectations for the Fed to hike two more times before the year is out, has given reason to buy USD-CAD on dips. Support comes in at 1.3009-10, and resistance at 1.3100.
EUR-USD turned lower during the London AM session after posting a four-session high of 1.1628 during the pre-Europe session in Asia. The high was seen as the USD index (DXY) corrected for a second day after rallying for much of the previous week (in the wake of the Fed’s upgrade on growth to “strong” from “solid”). There is a view in markets that the U.S. currency will tend to firm as trade tensions with China ratchet higher, and while a lift in global stock markets has cooled this narrative, a fresh escalation in the trade way (the U.S. announced tariffs on an additional $16 bln of Chinese imports, effective August 23) could rekindle risk aversion. We still remain bearish of EUR-USD. The relative strength of the U.S. economy should be showcased by incoming data, which in turn should girder the Fed’s course to further tightening (we expect two more 25 bp hikes in the Fed funds rate this year, one in September and another in December). Market participants are also facing two wildcards in Europe that carry potential to disrupt the EU applecart; one stemming from the evolving populist political landscape in Italy, and another being the palpable risk for there being a no-deal Brexit scenario. EUR-USD has resistance at 1.1650-52. The June low at 1.1508, which is the lowest level seen since July 2017, provides a downside waypoint.
Sterling has taken a big whack, which has sent Cable to one-year lows under 1.2875, dropping over a bid figure from yesterday’s closing level. The Pound has concurrently dove to a nine-month low versus the Euro and an 11-month low against the Yen. The losses today mark an acceleration in what has now been five consecutive weeks of losses in the case of Cable, which in turn marks the latest down phase in a bear trend that’s been evolving since mid April (from levels near 1.4400). Markets are demanding a bigger Brexit discount in Sterling, which we estimate to have been 10-15% in trade-weighted terms since the vote to leave the EU in June 2016. The discount has taken another ratchet after a senior government member said this week that the odds for a no-deal Brexit are now higher than the odds are for achieving a new deal. This comes with Prime Minister May’s government having become firmly stuck between a rock and a hard place, with most EU leaders backing the European Commission in rejecting much of British government’s Brexit plan while a sizeable minority of May’s Tory party think that the plan concedes too much to the EU. This raises the possibility for there being another referendum, while both the EU and UK have issued contingency-planning advice for a no-deal scenario. We advise trend following with regard to Cable while keeping a weather eye on Brexit developments. The August 2017 low at 1.2774 provides a downside waypoint.
The Yen has picked up some safe-haven bids as risk appetite in European equity markets flags with markets digesting the latest escalation in the Sino-U.S. trade war, deflating the momentum behind a global stock rally that had been underpinned by stellar U.S. corporate earnings and hopes for fiscal stimulus in China. This has seen USD-JPY break lower after four straight sessions trading on 111 handle, with the pair posting a nine-day low at 110.83. The biggest movers out of the main Yen crosses have been AUD-JPY, CAD-JPY and GBP-JPY, with declines of 0.5% or more on the day. USD-JPY has a series of daily lows that were seen during the latter part of July between 110.58 and 110.76, which now mark a key support zone.
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