Canadian dollar bulls took some blows yesterday. Canadian dollar technicals which had just turned bullish on Monday, flipped to bearish again yesterday. The bearish sentiment intensified following fresh U.S. recession concerns. Financial markets have been watching the U.S. yield curve closely after it inverted a few times in the past couple of weeks. The U.S. two-year/10-year yield curve inverted again Tuesday, and it is still inverted today.
Those concerns fueled small U.S. dollar gains against the G-10 majors in an otherwise quiet FX session, due to an absence of top-tier economic data. The British pound was the exception. GBP/USD collapsed after U.K. Prime Minister Boris Johnson announced his intention to suspend parliament.
U.K. politicians are on their summer recess until September 3. Sometime in the two weeks following the start of the new session, the Prime Minister will prorogue parliament until October 14. In a letter to MPs, Johnson promised to "bring forward a new, bold and ambitious domestic legislative agenda for the renewal of our country after Brexit." He went on to say "This morning I spoke to Her Majesty The Queen to request an end to the current parliamentary session in the second sitting week in September, before commencing the second session of this Parliament with a Queen’s speech on Monday, October 14."
Naturally, the Opposition parties are upset. Speaker of the House John Bercow described the move as "constitutional outrage." Scotland’s First Minister said the move smacked of behaviour in a dictatorship. FX traders saw a selling opportunity. GBP/USD plunged from $1.2280 to $1.2157. Profit-taking boosted GBP/USD to $1.2220 in early Toronto trading as the currency pair consolidates its losses.
Elsewhere, the FX markets were far less exciting. AUDUSD traded with a negative bias after the dovish statements from Reserve Bank of Australia Deputy Governor Guy Debelle yesterday and weaker than expected economic data today.
The yield curve inversion weighed on USD/JPY prices which traded with a negative bias inside a narrow band. USD/JPY continues to be pressured by lingering safe-haven demand for yen, dovish Bank of Japan comments and concerns around the U.S./China trade war.
While at the G-7 meeting in France, U.S. President Trump suggested that U.S./China trade talks would resume. However, traders are not overly eager to jump on the bullish trade bandwagon. Asia equity traders weren’t. The major equity indices closed on a mixed note, and the European bourses are in the red.
EUR/USD is trapped in a narrow range which could change on Thursday after the release of Eurozone consumer and Business Confidence data as well as German inflation.
There are not any top tier economic data reports from Canada or the US today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
