Home Daily Commentaries Dollar erases most of yesterday’s gains on talk of global slowdown

Dollar erases most of yesterday’s gains on talk of global slowdown

Daily Currency Update

The US dollar is decreasing sharply this morning (almost 0.50 percent) after a tone of cautious optimism at Davos and knowledge of a slowdown in the global economy.

Domestically, according to the Wall Street Journal, Federal Reserve officials are close to finalizing the decision to maintain a broader portfolio of Treasury securities than they’d expected when they began shrinking those holdings two years ago, putting an end to the central bank’s portfolio wind-down closer into sight.

During the trading session yesterday, the EUR/USD traded between 1.1289 and 1.1391 after Draghi’s comments and the ECB rate decision. This will make for an interesting Friday close, because the Euro is trading at 1.1367 this morning. The Euro is more than 50 percent of the US dollar index; it is the main FX pair to watch to have a clue about the US dollar’s direction.

Key Movers

The Loonie rallied in the overnight trading session. It has been a week without many Canadian events on the schedule, except for retail sales on Wednesday and both manufacturing sales and wholesale trade sales on Tuesday, which were not good news for the Canadian Economy. All things considered, the Loonie has depreciated only 0.2 percent against the Greenback so far since the start of the week. However, it has performed better than the Japanese Yen (+0.6 percent) and the Aussie dollar (+0.3 percent) during the same period.

We will receive news about the Canadian economy next week, with the release of the monthly GDP and the yearly GDP report on Thursday. Part of the Loonie’s rally overnight was encouraged by a slight bounce of crude oil WTI, which at one moment earlier today touched 53.69 US dollars a barrel, but it is trading at around 53 dollars at the time of this writing.

Technically speaking, the USD/CAD is making patterns that indicate that if it stays below the 1.3300 handle, it might continue to the 1.3200 handle (stronger Loonie). However, if it trades above 1.3375, it would have space to go higher, probably close to 1.3500 (weaker Loonie). The USD/CAD pair is trading at 1.3283, which is a 0.50 percent fall (strong Loonie) at the time of this writing.

EUR/USD was sold off yesterday following the European Central Bank's assessment of the Eurozone economy. The ECB left its monetary policy unchanged, which was widely expected. However, they finally admitted that the growth risks are now biased downwards, blaming protectionism for the change. The ECB stated that there would be no changes in their stance until the next staff projections are updated in March. President Mario Draghi also indicated that the persistence of weak data would dictate the type of policy action at the following meetings.

EUR/USD fell below the 1.1300 handle on the news but has quickly recovered since and opens this morning back above the big figure.

There’s no data due out from the Eurozone today, but the ECB’s dovish stance will likely keep any Euro gains in check though.

The GBP/USD pair pushed higher overnight following rumors that the Democratic Unionist Party would be backing Prime Minister Theresa May’s Plan B next week. It is trading at 1.3124 this morning, a 0.47 percent increase. This latest headline is providing some good support this morning too, albeit the pair has come down off its overnight highs.

There’s not a lot of top tier data due for release, and so the focus is likely to remain affixed on Brexit related headlines.

The AUD has remained on the back foot for the last 12 hours or so. If anything, it’s been bid slightly higher, mostly a result of some mild weakness in the Greenback.

It’s a public holiday in Australia on Monday and so action in AUD/USD, like most other major pairs, is likely to be muted.

The Kiwi, like the Aussie dollar, made some mildly positive gains overnight. There was no apparent cause other than a slightly weaker Greenback.

Other than ‘visitor arrivals’ there was no top tier local data out from New Zealand.

Expected Ranges

  • USD/CAD: 1.3200 - 1.3282 ▼
  • EUR/USD: 1.1350 - 1.1411 ▲
  • GBP/USD: 1.3070 - 1.3200 ▲
  • AUD/USD: 0.7150 - 0.7215 ▲
  • NZD/USD: 0.6807 - 0.6842 ▲