Wall Street driving FX moves

Wall Street is in the driver’s seat for FX moves.  Equity traders are nervous because of escalating trade tensions between the US and the world.  China gets the most attention but President Trump’s threat to levy 25% tariffs on imports of cars has Canadian officials running for the Depends, South Korean auto executives in Washington pleading their case for an exemption, and the European Union very annoyed.

The Dow Jones Industrial Average opened with a tiny loss compared to the close while the S&P 500 posted a tiny gain.  FX traders are watching equity markets closely because they, depending on how they close, will dictate US dollar direction for month- and quarter-end portfolio rebalancing purposes.

This morning’s US Q1 GDP report was mildly worse than expected, showing a 2.0% gain versus the 2.2% forecasted.  However, the data were old and stale, and Q2 growth appears robust.  Initial Jobless Claims came in at 227,000, above the 220,000 estimate.

USDCAD is well below its 1.3385 peak which happened immediately after the text of Bank of Canada Governor Poloz’s speech late yesterday afternoon.  He reminded markets that the BoC was data-dependent.  Traders are looking ahead to Friday’s Canadian GDP data for April.  A higher than expected result (forecast 0.0%) would solidify calls for a rate increase in July.  The intraday USDCAD technicals warn that a break below 1.3270 would extend losses to 1.3210 and perhaps 1.3150, leading to a period of 1.3150-1.3185 consolidation.

Sterling is under pressure, and while prices are below 1.3100, long-term support in the 1.3020 area is at risk.  A break below it would lead to further losses to 1.2830.  The currency is suffering from renewed “hard” Brexit fears.  Prime Minister Theresa May has reportedly called a July 6 cabinet meeting to hammer out the UK’s blueprint for its relationship with the EU.