The Canadian dollar acquired upward momentum overnight. Better-than-expected Chinese Caixin Manufacturing Purchasing Managers Index data, and relief that U.S. President Trump’s press conference last Friday was more noise and hype, rather than substance sparked demand for the so-called “risk-assets.”
Asia equity indexes closed with strong gains. European indices are higher except for the German Dax, which suffered on the back of weaker than expected domestic Manufacturing PMI. However, the rash of riots across the U.S., and reports that China ordered some state firms to pause purchases of US agricultural products, turned S&P futures negative.
Canadian dollar direction will be dictated by external events and not this week’s Bank of Canada meeting or employment report.
Wednesday’s BoC meeting will have little impact on USD/CAD. Rates and policy will be unchanged, and there will not be a press conference, but there will be a change of Governors. Incumbent Stephen Poloz rides off into the sunset, while incoming Tiff Macklem takes his place at the head of the table.
Canada’s Labour Force Survey is expected to show a loss of one million jobs with an unemployment rate of 15%. USD/CAD traders will likely ignore the results, as the currency pair direction continues to be directed by broad U.S. dollar sentiment and oil prices.
The oil price rally is supporting the Canadian dollar. The Organization of the Petroleum Exporting Countries and Russia are reportedly meeting this week amidst reports they are planning to extend crude production cuts of 10.0 million barrels/day for another three months.
Thursday’s European Central Bank policy meeting will be closely watched. Policymakers are expected to increase the size of the Pandemic Emergency Purchase Program (PEPP). Economists also expect that downgrades of ECB forecasts, which could give EUR/USD a negative bias.
However, EUR/USD will continue to be supported by the European Union (EU) proposal for an €825 billion COVID-19 Relief Fund. The intraday EURUSD technicals are bullish above 1.1075. The overnight break of resistance at $1.1150 targets $1.1240. A move below $1.1060 suggests a retest of $1.0950 while leaving the May uptrend intact above $1.0905.
GBP/USD will track EUR/USD moves for the most part but will be very vulnerable to rumours and reports about the EU/UK trade talks.
They are in their final round this week with the June 30 deadline, imposed by the EU for an “outline agreement” looming. Without that agreement, the EU say they would be unwilling to discuss a broader free trade pact. The GBP/USD uptrend from the middle of May is intact while prices are above $1.2250 but needs to break through resistance at $1.2430 to extend gains to $1.2505.
There is no shortage of economic data this week. However, the FX impact from the results will be minimal. Weak data will be attributed to measures implemented to combat COVID-19. The ECB meeting and NFP results will overshadow better-than-expected results.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians