April 22, 2024

• Risk sentiment improves as geopolitical tensions ease.
• US 10-year Treasury yield climbs to 4.66%
• US dollar opens with small losses-Safe-haven currencies underperform.

FX at a Glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3723, overnight range 1.3715-1.3754, close 1.3748.

“Tora! Tora! Tora!” was the signal transmitted by Japanese pilots to their fleet to indicate they had achieved complete surprise in their attack on Pearl Harbor. It can also be used to describe what many Canadians heard when they awoke to the news that the government is giving multiple billions to Honda. The Fed’s generosity follows on the heels of $15 billion for Stellantis, and $13 billion to Volkswagen.

The government’s largesse is coming at a time when the EV demand is slowing due to limited interest from mainstream consumers and a lack of infrastructure. In addition, in the government’s obsession to eradicate the fossil fuel industry, they are overlooking the massive environmental damage caused by EV vehicles, from mining rare-earth minerals, fire hazards from exploding batteries, and wear and tear on roads as EV vehicles weigh twice as much as gas-powered cars. The Feds have put the cart so far in front of the horse, they think the race is over and the horse isn’t even at the starting gate.

Canada New Housing Price Index and Raw Materials Price Index are due, but as usual, USDCAD direction will be determined by broad US dollar sentiment.

USDCAD Technicals

The USDCAD technicals are bearish below 1.3780, looking for a break of 1.3710 to extend losses to 1.3650. A decisive breach of 1.3650 would target 1.3550.

Longer term, the 2024 uptrend is intact while prices are above 1.3530 which is also where the 200 day moving average is.

For today, USDCAD support is at 1.3710 and 1.3680. Resistance is at 1.3760 and 1.3790. Today’s range is 1.3680-1.3760.

Chart: USDCAD daily

Source: DailyFX

Time For a Forecasting Re-think

Former Fed President Ben Bernanke thinks the current Fed needs to rethink its communication strategy. He is not a fan of the dot-plot rate forecasts and thinks the Fed should adopt a scenario analysis strategy, which Bloomberg describes as “emphasizing a range of credible risks to the baseline and how a central bank might respond.” The current dot-plot is a source of market volatility as traders and analysts try to discern how policymakers will react to incoming data.

Equity Recap
Asian equity indexes closed with gains with the improvement in risk sentiment. Japan’s Nikkei and Australia’s ASX 200 indices rose 1.0%. European bourses opened positively and the UK FTSE 100’s 1.42% gain is leading the pack higher. S&P 500 futures are up 0.50%, while gold (XAUUSD) dropped $44.00. The US 10-year Treasury yield ticked up to 4.662% after closing at 4.615% on Friday.

EURUSD
EURUSD traded narrowly in a 1.0647-1.0671 range with support improving as Middle East tensions ease. Traders have not wavered from their belief that the ECB will cut rates at its June meeting. Euro area PMI data is due tomorrow.

GBPUSD
GBPUSD is under pressure and dropped from 1.2393 to 1.2333 in NY. Prices are weighed down following comments on Friday by BoE Deputy Governor Dave Ramsden. Mr. Ramsden said he is more confident that inflation pressures are receding, which raised speculation of a rate cut as early as June. The break below 1.2370 sets the stage for further losses to 1.2210.

USDJPY
USDJPY remains bid in a 154.45-154.79 range, supported by the US 10-year Treasury yield rising to 4.652%. BoJ Governor Kazuo Ueda is sending mixed signals. On one hand, he is telling markets that monetary policy will remain ultra-easy, while on the other hand, threatening FX intervention to combat the falling yen.

AUDUSD and NZDUSD
AUDUSD drifted lower in a 0.6414-0.6455 range before rebounding to 0.6439 in early NY. The easing of global risk tensions and the relatively low unemployment rate suggests the RBA will be in no hurry to cut rates. Australian CPI is expected to be unchanged at 3.4% on Wednesday.

NZDUSD traded in a 0.5886-0.5928 range and is sitting in the middle of that band in early NY with prices supported by improved risk sentiment.

USDMXN
USDMXN drifted down from 17.1111 to 17.0119. Banxico Governor Victoria Rodrigues said that recent price volatility was reversed quickly and would not have an impact on prices. The USDMXN downtrend is intact while trading below 17.2000.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: 7.1043 (prev. 7.1046).

Shanghai Shenzhen CSI 300 fell 0.98% to 3541.66.

PboC leaves rates unchanged 1-year LPR 3.45%, 5-year LPR 3.95%

Goldman Sachs revised its 12 month yuan forecast to 7.20 from 7.05 previously.

Chart: USDCNY and USDCNH 4 hour

Source: Investing.com