Even with the large drop in crude oil inventories these past two weeks, oil prices are barely in positive territory. Markets are focused on the escalation of the global trade wars, Trump has indicated that he might place a 25% tariff on all cars made in Canada that are imported into the States. Since Ontario’s economy has a 47% dependence rate on exports to the US, it would have a devastating impact there, and would put Canada into a recession. The Canadian dollar has fallen 5% so far this year against the USD and will likely stay around these levels in the short time.
USDCAD 1.3278, 1.3210, 1.3195, 1.3315, 1.3345, 1.3375
USD-CAD is up for a fifth consecutive session, printing today a fresh one-year high at 1.3311. Last week’s unexpectedly hawkish Fed guidance, a possible easing in oil supply quotas by OPEC and Russia (to be decided at Friday’s meeting in Vienne), and ratcheting trade tensions have all been supportive drivers of USD-CAD. We retain a bullish view of USD-CAD, partly on the Fed versus BoC policy outlook, and on the view that trade tensions are likely to drag for the foreseeable. Support is at 1.3227-30.
EUR-USD recovered to the mid 1.1500s after posting a three-week low at 1.1531 yesterday following dovish-tilting remarks from ECB policymakers yesterday, which were followed up today by member Villeroy, albeit to less impact this time. ECB President Draghi said yesterday that “we will be patient will the timing of the first and will take a gradual approach… thereafter.” We had been advocating fading EUR-USD gains in the wake of the ECB’s dovish-tilting guidance of last week, which put emphasis on the Fed’s tightening path. After a two-week hiatus, the sharp declines since last Thursday have reaffirmed a down trend that’s been in evolution since mid April. The weekly close on Friday below the previous weekly close at 1.1659 is consistent with Dow Theory’s definition of a bear trend. EUR-USD has resistance is at 1.1597-1.1600.