NY Open: Watching paint dry
Traders are on tenterhooks ahead of the release of the latest FOMC meeting minutes later today. They shouldn't bother. Fed board members have repeatedly flown the dovish flag in recent days, so why expect surprises?
Summary: After a tense negotiation period, the US and Canada have agreed to a new trade deal, and USDCAD bulls are again in retreat. In the UK, meanwhile, sterling is trading higher on reports of Brexit compromises from Downing Street.
It's finally here. US and Canadian trade negotiators waited until the last minute on Sunday night to announce a new trade deal. President Trump promised to get rid of the "North America Free Trade Deal" moniker, and he did. The new pact will be known as the United States Mexico Canada Agreement, or USMCA.
The Agreement highlights include:
•Creating a more level playing field for American workers, including improved rules of origin for automobiles, trucks, other products, and disciplines on currency manipulation.
•Benefiting American farmers, ranchers, and agribusinesses by modernizing and strengthening food and agriculture trade in North America.
•Supporting a 21st Century economy through new protections for U.S. intellectual property, and ensuring opportunities for trade in U.S. services.
•New chapters covering Digital Trade, Anticorruption, and Good Regulatory Practices, as well as a chapter devoted to ensuring that Small and Medium Sized Enterprises benefit from the Agreement.
President Trump took to Twitter to bash the old agreement and praise the new deal. Prime Minister Trudeau promised more information on Monday.
Traders sold USDCAD, continuing the slide from Friday’s 1.3080 peak. It gapped lower at the Asia open and dropped to 1.2789 in New York trading before profit-taking took it back to 1.2817 in New York.
The new USMCA will help to wipe the fog from the Bank of Canada’s crystal ball. A better than expected domestic employment report combined with lasts week's robust July GDP data will reinforce calls for the BoC to raise interest rates on October 25 and put a December rate hike on the agenda.
The USDCAD technicals are bearish supported by the break below the 200-day moving average at 1.2867. The move below the 1.2890-1.2705 area snapped an uptrend line that had been in place since February; both areas should revert to resistance. Fibonacci retracement studies for the February-June range (1.2260-1.3385) suggest the break of the 50% retracement level at 1.2824 targets the 61.8% level (1.2690) and the 76.4% level (1.2528).
USDCAD isn’t the only currency to see action in New York trading. GBPUSD jumped to 1.3080 from 1.3048 (as of 1350 GMT) after Bloomberg reported UK Prime Minister Theresa May new plan is “the UK would back down on its opposition to new checks on goods moving between the British mainland and Northern Ireland. In exchange, May’s team would need the EU to compromise and allow the whole of the UK, including Northern Irelandm to stay in the bloc’s customs regime.”
Wall Street liked the USMCA news. The DJIA rose 212.5 points 0.78%) leading the S&P 500 and Nasdaq higher.