USDCAD offered on broad USD selloff following positive North Korea headlines. Negative trade/NAFTA developments pushed to the side for now. Bank of Canada meets tomorrow.
  • USDCAD: Traders wasted no time yesterday extending gains for USDCAD in the wake of Trumps early morning tweet about Canada, tariffs and NAFTA. Horizontal chart resistance at 1.2925 gave way easily and so the market made a bee-line for the next resistance level, which was 1.2975-1.3000. Once this level was reached however, USDCAD struggled. The broader USD shrugged off the stronger than expected US Services ISM figures, and more importantly EURUSD regained 1.2330-40 into the London close. This created a broad USD offered tone for the rest of the day yesterday; a trend which was hard for USDCAD longs to fight. After one last attempt higher in the 3pm hour, the USDCAD rally failed at 1.3000 and the market closed NY trading below 1.2975 (which was not a great close technically). Traders made an attempt to move the market back above the 1.2975 level in early European trading on the back of negative headlines late yesterday from the NAFTA negotiators, but that rally attempt fizzled out again in the 5am hour (another negative) and then the floor fell out for the USD more broadly on some North Korea headlines. The headline said North Korea open to denuclearize if regime safety guaranteed, and with that the USD is falling apart as the market removes some of the USD safe-haven premium that would have been associated with an escalation in North Korean tensions. Its a bit of an odd move right now considering the USD never really had a safe-haven bid to it because of recent North Korean tension, but this headline is known in trading circles as a risk-on headline and the USD normally doesnt fare well under such scenarios. With this development, USDCAD has now tested the 1.2860-70 support level. We think USDCAD will now try to consolidate the losses of the last few hours ahead of the Bank of Canada interest rate decision tomorrow. Next chart support is 1.2830-40. Resistance is 1.2930. This are no major economic data points out of North America today.

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Erik Bregar - Director, FX Trading
Exchange Bank of Canada
Toronto, Ontario

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