Source: Pixabay

May 20, 2021

FX views FOMC minutes as hawkish

Weekly Jobless Claims improve again

US dollar opens mixed, consolidating moves

USDCAD open 1.2129-33, Overnight range 1.2102-1.2143, Previous close 1.2131

FX at a Glance-24 hour change

FX Recap and Outlook

US weekly jobless claims fell 34,000 to 444,000 in the week ending May 15, and slightly better than forecast. The news did not have much impact on FX markets.

Asia equity indexes closed with modest gains, despite the negative close on Wall Street.  European bourses are mixed to higher, while S&P futures are lower.  Gold and oil prices are down, and 10-year Treasury yields are unchanged.

The FOMC minutes caused quite a stir.  Traders interpreted a vague, convoluted statement as a signal the Fed plans to taper.  The statement in question was a namby-pamby collection of wishes, and uncertainties, disguised as informed analysis.  Hardly a call to action.

You be the judge.  (“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”)

Traders were skittish ahead of the minutes thanks to Bitcoin melting down.  BTCUSD fell to $30,201.96 from $40,462.33, as traders bailed in an ongoing reaction to Chinese officials reminding traders that digital tokens can’t be used for payment.  Elon Musk continues to influence price action.  He knocked BTCUSD lower when he reversed a decision to allow BTCUSD to be used to pay for Tesla.  Wednesday, he tweeted an emoji which suggested holding positions, and that helped BTCUSD  to rebound to $39,800 today.

Commodity prices have come off the boil.  Chinese officials, spooked by rising prices triggering inflation,  pushed back.  They warned steel mills about price gouging, and is cracking down on speculators.  The FOMC minutes exacerbated concerns.

The S&P Goldman Sachs Commodity Index (GSCI) plunged 2.1% yesterday. 

WTI oil prices were $64.92/b in Europe on Wednesday and are $62.00/b in NY today.  The EIA reported US crude inventories increased by 1.3 million barrels, and reports that Iran, the US and other reached an agreement to revive the nuclear deal and end sanctions, weighed on prices.

EURUSD failed to break above resistance at 1.2250 yesterday and dropped to just above key support at 1.2150, before recovering to 1.2200.  The FOMC minutes weighed on prices, as did dovish comments from ECB Chief Economist Philip Lane, who dismissed the rise in inflation as temporary.  EURUSD has support at 1.2150 and resistance at 1.2250.

GBPUSD consolidated yesterday’s losses in a 1.4102-1.4140 range.  The uptrend line from the beginning of May is intact above 1.4100.   If broken, prices would revisit support at 1.4000.

USDJPY rallied on the prospect of higher US rates, despite 10-year Treasury yields remaining unchanged.  However, gains were limited due to safe-haven demand for yen due to falling equity and commodity prices.

AUDUSD was the best performing currency in the past 24 hours as it opened todays NY session unchanged.  Australia lost 30,600 jobs in April, but the news was ignored by FX traders as it followed an outsized 70,000 gain in March.

USDCAD rallied yesterday,  rising from 1.2052 to 1.2140, then spent the overnight session consolidating the gains in a 1.2102-1.2143 band.  Canada inflation soared 3.4% y/y, the highest level in 10 years.  The results did not have any impact on the currency, unlike what occurred with the US dollar when the American inflation rate soared.  The BoC believes the rise is temporary and due to base effects.  USDCAD demand was fueled by the plunge in oil and other commodity prices, with the perception of a hawkish Fed exacerbating the gains.

Canada New Housing Prices rose 9.9% y/y in April, further evidence of a domestic economic rebound.

Bank of Canada Governor Tiff Macklem holds a press conference at 11:00 am ET to discuss the Financial System Review.

USDCAD Technical Outlook The intraday technicals are bullish above1.2090, looking for a break of 1.2150 to extend gains to 1.2240. A move below 1.2190 negates the rally and shifts the focus to 1.2000. For today, USDCAD support is at 1.2090 and 1.2050. Resistance is at 1.2150 and 1.2205. Today’s Range 1.2070-1.2140 T

Chart: USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank