Photo: Bing AI

September 25, 2023

  • US 10-year Treasury yield above 4.50%%
  • German Ifo highlights stagnating economy.
  • US dollar inches higher in quiet overnight session.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot:  open: 1.3466-70, overnight range: 1.3470-1.3491, close 1.3482.

USDCAD dropped to 1.3385 in the wake of a hotter than expected inflation report last Tuesday which boosted the odds for a Bank of Canada rate  hike to 50%, at the October 20 meeting.  That data was forgotten the next day after the Fed’s Summary of Economic Projections predicted at least one more rate hike in 2023 and no rate cuts until 2025. Since then, USDCAD traded in a 1.3385-1.3530 range as Canadian influences take a back seat to America.

USDCAD continues to derive some support from steady to firm oil prices.  WTI traded in a $89.94-$90.83 range. Friday, a JPMorgan oil analyst predicted $150/barrel oil because of Opec production cuts and a lack of investment in new oil production.

USDCAD Technicals

The intraday USDCAD technical are bullish while trading above 1.3440 and looking for a break above 1.3490 to target 1.3550.  The daily technicals are bullish above 1.3410 with a move through 1.3500 putting 1.3650 in play.

For today, USDCAD support is at 1.3430 and 1.3390. Resistance is at 1.3490 and 1.3550. Today’s range 1.3430-1.3505

Chart: USDCAD daily

Source: Investing.com

G-10 FX recap

The tier-one central bankers have spoken. The Fed, Bank of England, Bank of Japan, and ECB announced monetary policy decisions that were inconclusive at best, leaving traders to mop up the mess. The bankers suggested that interest rates may rise further or stay at current levels because the economy may grow or shrink, and inflation may drift down at a snail’s pace unless it accelerates.

 Fed speakers didn’t help.  Michelle Bowman (voter) said she expected further rate hikes would be needed, and her non-voting colleague, Susan Collins, largely agreed. This week is chock-full of economic data, which suggests price action will be choppy into Friday month-end.

The 10-year US Treasury yield climbed to 4.495% in NY today compared with Friday’s close of 4.507%, which has underpinned the US dollar.

Asian equity indexes closed higher, led by a 0.86% rise in Japan’s Nikkei 225 index, while a 1.82% plunge in Hong Kong’s Hang Seng index led the main Chinese markets lower. European bourses opened in negative territory and continued to slide. The German Dax is down 0.69%, and the UK FTSE 100 is down 0.58%. S&P 500 futures are 0.23% lower.

EURUSD traded quietly in a 1.0623-1.0655 range, partly due to another poor German Ifo reading. The Business climate index fell to 85.7 from 85.8 in August. ING analysts said it was one of the weakest readings of the last five years, but expectations improved somewhat. The intraday EURUSD technicals are bearish below 1.0715, looking for a break below 1.0615 to target 1.0510.

GBPUSD traded defensively in a 1.2212-1.2265 range due to the fallout from last week’s Bank of England decision to leave interest rates unchanged and Friday’s soft PMI data (Services PMI was 47.2, previous 49.5). The intraday technicals are bearish below 1.2260 and looking for a test of 1.2185. A break above 1.2260 targets 1.2420.

USDJPY was steady in a 148.25-148.65 range, supported by the rise in US Treasury yields and the divergent BoJ and Fed monetary policy outlooks. However, gains are slowed by concerns about BoJ intervention.

AUDUSD drifted in a 0.64132-0.6439 range, with price action tracking broad US dollar sentiment. Traders are looking ahead to Wednesday’s inflation report (forecast 5.2% vs. previous 4.9% y/y).

There are no top-tier US economic reports today.

FX high, low, open

Source: Investing.com

China Snapshot

Bank of China Fix: today 7.1727, expected 7.2983, previous 7.1729.

Shanghai Shenzhen CSI 300 fell 0.65% to 3714.60.

Stocks sink after troubled developer Evergrande Group cancelled key creditor meetings and said it may have to revise its restructuring plan, according to Bloomberg.  In addition, Country Garden Holdings may suffer an imminent default.

A PBoC advisor said China has limited room for further monetary policy easing. He said it show pursue structural reforms as a way of encouraging entrepreneurs. (Apparently arresting them isn’t working).

NYT report on Taiwan having China as a neighbor.  Blasting Bullhorns and Water Cannons, Chinese Ships Wall Off the Sea – The New York Times (nytimes.com)

Chart: USDCNY 1 month 

Source: Bloomberg