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Canadian dollar update – Friday May 22, 2020. Tensions rise - China bringing Hong Kong to heel, scoffs at US outrage.

Canadian dollar update – Friday May 22, 2020. Tensions rise - China bringing Hong Kong to heel, scoffs at US outrage.
Arif Harji
by Arif Harji on May 22, 2020


FX & market recap:

China’s Hong Kong plans, Trump’s response, and Trump’s earlier tweets about Beijing’s handling of the COVID-19 outbreak boost risk aversion. US dollar is also in demand due to profit-taking, ahead of the long Memorial Day weekend in the US. Most traders in North America expect today’s session to be uneventful.

Canadian dollar highlights:

USD/CAD rallied and blew through resistance at 1.3910 and 1.3950, enroute to 1.4034 overnight. Yesterday, outgoing Bank of Canada Governor Stephen Poloz said he thought the pessimistic outlooks for the domestic economy were "a little too dire, its over-blown." He complained that analysts have been focused on poor numbers, rather than the nature of the downturn. Canada March Retails Sales data is expected to show a drop of 10% m/m.

Euro highlights:

EUR/USD extended yesterday’s losses, sliding from 1.0950 to 1.0888. Weak German and Eurozone Manufacturing PMI data and failure to take out resistance in the 1.1025 area, drove prices lower yesterday. The shift to risk aversion sentiment triggered stop-loss selling on the break below 1.0940 in Asia, and prices never recovered.

British pound highlights:

GBP/USD mirrored EUR/USD moves. Prices were weighed down by comments from Bank of England Deputy Governor Dave Ramsden warning of additional QE spending in June, adding that one needed an “open mind” on negative rates. Record high budget deficit data and a 22.6% drop in April Retail Sales didn’t help. The intraday technicals are bearish below 1.2260.

Asia Pacific highlights:

USD/JPY is poised to extend losses as the break below support at 107.50 targets 106.80. The selling pressure stems from safe-haven demand for yen and falling US Treasury yields. The Bank of Japan left rates unchanged and announced a support package for small businesses. Meanwhile, AUD/USD and NZD/USD dropped on the back of broad US dollar demand, sparked by fears that China/US tensions would jeopardize the global recovery.