We have seen some increased volatility in recent days/weeks in certain currencies. Brexit has induced some major moves in GBP pairs, while the USD has been bearish this month, which has sent risk currencies higher, as the sentiment in financial markets improved. The CAD has also been volatile, but that was due to Crude Oil surging higher after the attack on Saudi Arabia’s Oil production and refining capacities. US WTI crude moved close to $63.50 but it has retraced lower to $62 now, although it still remains pretty bullish.

As we mentioned, the USD has been on a bearish trend this month, but today it has been moving higher. Whether this is a trend reversal or just a pullback before the FED meeting tomorrow remains to be seen. But markets are taking sides now as we approach the FOMC meeting. The FED is expected to cut interest rates again tomorrow, but that wouldn’t be enough to turn the USD bearish in the long term. The FED would have to turn really bearish and leave the door open for further cuts and monetary easing, although we don’t know if they will, so traders are trying to be cautious right now. On another front, the economic sentiment improved in Europe today, but it still remains pretty negative.

The European Session

• Swiss Government Cuts GDP Forecast – The Swiss government said this morning that the economic outlook has become “gloomier” with the franc’s appreciation in recent months hampering exports and the downturn in Germany’s manufacturing sector. They cut the GDP growth as follows:
• 2019 GDP growth forecast 0.8% (previously 1.8%)
• 2020 GDP growth forecast 1.7% (unchanged)
• 2019 inflation forecast 0.5% (previously 0.6%)
• 2020 inflation forecast 0.4% (previously 0.6%)
• ECB’s Villeroy Speaking on Oil and Brexit – The ECB governing council member Francois Villeroy de Galhau made a few comments today, saying that if current oil shock lasts, it could increase inflation and hamper economic growth. He added that Brexit remains bad news but banking supervisors are ready for no-deal Brexit.
• Eurozone and German Zew Economic Sentiment – The economic sentiment has been deteriorating in Europe, falling to -40s in August. Although, today’s report was expected to show an improvement to -38. But, the sentiment improved further, beating expectations when it came at -22.4 for the Eurozone and at -22.5 for Germany. Although, the ZEW survey current situation declined further at -19.9 points vs -15.0 expected. This is the weakest level since May 2010.
• Lagarde Gains the Support of the EU Parliament for the Head of the ECB Position – The head of the IMF Christine Lagarde has been the main contender for Mario Draghi’s job at the ECB. Today, she gained the European Parliament approval to lead ECB. The vote was 394-206 in her favour, with 49 abstentions.
• BoJo Still Believes a Deal can be Reached – The UK government spokesman James Slack said earlier today that the UK Prime Minister Boris Johnson believes there is a deal to be done. Although, no-deal planning must continue ‘at pace’. Johnson spoke to Merkel this morning. Both parties agreed on the need to accelerate Brexit talks. Looking to discuss further at the UNGA next week. UK has been putting forward details of backstop proposals.

The US Session

• Canadian Manufacturing Sales – Manufacturing sales have been volatile in recent month, when we have seen two declines and an increase. The report released last month showed a 1.2% decline in manufacturing sales for June, which was revised even lower to -1.4% today. For July, sales were expected to decline again, by 0.3% this time. But they missed expectations and showed a 1.3% decline for that month. Sales were down in all 11 industries.
• US Industrial Production – The industrial production has been weakening in the US, having fallen flat in June and declining by 0.2% in July. Although, today’s report was expected to show a 0.2% growth for August, but the report came at 0.6%. Manufacturing production grew by 0.5% against 0.2% expected, capacity utilization grew by 77.9% against 77.6% expected.
• Crude Oil Reverses on Saudi Comments – Crude Oil has been really bullish in the last few sessions after the attack on the Saudi Oil producing facilities. But, it has just lost around $2 on a Reuters report which said that Saudi output will return to normal levels quicker than initially thought, citing two sources.

Trades in Sight

Bullish USD/CAD

• The trend has turned bullish on the H1 chart
• The 50 SMA is pushing the price higher
• Fundamentals point up

USD/CAD has turned bullish again after the bearish gap yesterday

USD/CAD turned bearish in the first week of this month as the USD turned softer. But, towards the middle of last week the trend changed and since then this pair has been climbing higher. Yesterday we saw a bearish gap on this pair after Oil surged higher on Saudi Oil facilities attack. But, the price found support at the 50 SMA (yellow) and the 100 SMA (red) on the H1 chart and the bullish trend resumed. The 50 SMA keeps pushing USD/CAD higher and the decline in Canadian manufacturing sales sent this pair higher again a while ago, so this pair is quite bullish now.

In Conclusion

Oil has been surging in the last two days, especially on comments that Saudis couldn’t bring back production capacities to normal level after the attacks, for at least 6 months. But Reuters reported that that might come much earlier than previously estimated and Oil is reversing down now. Let’s hope they do, since it would bring the market back to normality.