May 23, 2024

• US data and Wall Street will determine FX direction
• China bullying Taiwan, again
• US dollar opens mixed, but little changed-Gold is the big loser

FX at a Glance

Source: IFXA/RP

USDCAD open 1.3669, overnight range 1.3665-1.3697, close  1.3695

USDCAD is trading with a bid. The increased odds that the BoC cuts rates on June 5 following this week’s soft inflation data combined with the hawkish outlook for FOMC monetary policy is supporting prices.

WTI oil prices are choppy with prices dropping to 76.83 in Asia before rebounding to 78.29 in NY.  The EIA report of a 1.82 million barrel increase in US crude inventories last week drove prices lower but the increased risks of supply disruption from US Hurricane season helped to reverse the move.

USDCAD trading may get very messy around the 10:00 am NY option expiry window as $1.3 billion of strikes in the 1.3665-1.3675 area expire.

Canada New housing price index data is ahead.

USDCAD Technicals

The intraday USDCAD technicals are bullish above 1.3650 and looking for a break above the 1.3695-1.3705 area to negate the downtrend channel and revisit resistance at 1.3750. Failure to break the top argues for a retest of 1.3590.

The daily chart  technicals are unchanged.  The uptrend line at 1.3550  is intact and is guarded by support at 1.3590.  Fibonacci retracement analysis suggests that a break above 1.3690 risks 1.3800.

For today, USDCAD support is at 1.3630 and 1.3590. Resistance is at 1.3705 and 1.3750. Today’s range is 1.3640-1.3720.

Chart: USDCAD daily

Source: DailyFX

FOMC Minutes were stale

The FOMC minutes revealed that policymakers expected it would take longer than previously expected to get confidence that inflation was on a sustainable trend to 2.0%. Most of the FOMC members, including Jerome Powell, have said the same thing since the May 1 meeting. That suggests that the US dollar gains, following the release of the minutes, will be reversed in the coming days.

How does AI spell Relief? Nvidia.

Equity traders and analysts were hoping and praying that Nvidia’s (NVDA: Nasdaq) first-quarter results would live up to the hype and keep the AI machine running at full steam. They did. The stock rose 7.8% in after-hours trading, boosting its market cap by $182.0 billion. The overnight gain exceeds the entire market cap of its former competitor, Intel Corp, by 136%.

The news didn’t do much for Asian equity indexes. Traders were focused on the FOMC minutes. Japan’s Nikkei 225 rose 1.26% while Australia’s ASX 200 lost 0.46%. European bourses are trading higher, and S&P 500 futures have gained 0.53%. The biggest loser is gold. The prospect of unchanged US rates for longer knocked down from XAUUSD $2450.06 on Monday to $2366.73 this morning.

Weekly jobless claims were 215,000 (forecast 220,000) which keeps the tight labour market story alive.

EURUSD

EURUSD rose from 1.0812 to 1.0848, supported by fading post-FOMC US dollar support and by better-than-expected (but still weak) German PMI data and mixed Eurozone data. (Flash Eurozone Composite PMI Output Index(1) at 52.3 (April: 51.7). 12-month high. Flash Eurozone Manufacturing PMI Output Index(4) at 49.6 (April: 47.3). 14-month high). S&P Global economists wrote, “The PMI composite for May indicates growth for three months straight and that the eurozone’s economy is gathering further strength.”

GBPUSD

GBPUSD traded in a 1.2705-1.2739 range. Prices got a modicum of support from an increase in UK May Manufacturing PMI to 51.3 from 49.1. The S&P Global Chief Business economist wrote, “The flash PMI survey data for May signaled a further expansion of UK business activity, suggesting the economy continues to recover from the mild recession seen late last year. The survey data are consistent with GDP rising by around 0.3% in the second quarter.” UK Prime Minister Rishi Sunak called an election for July 4 even though the Labour Party is leading in the polls by 20 points. GBPUSD gains may be capped as a Labour government is not friendly to business. Think Prime Minister Jagmeet Singh.

USDJPY

USDJPY closed at 156.81 in NY then drifted in a 156.56-156.91 range overnight. Broad US dollar demand following the release of the FOMC minutes, steady US Treasury yields, and an article by Goldman Sachs forecasting a weak yen for months to come, underpinned prices. Goldman Sachs said that the strong US economy, the BoJ’s tepid response to a weakening currency, and increased investment outflows will support USDJPY. Meanwhile, Japanese Manufacturing PMI rose to 50.5 from 49.6.

AUDUSD AND NZDUSD

AUDUSD is at the top of its overnight 0.6613-0.6640 range after shrugging off Consumer Inflation Expectations data which fell to 4.1% in May, from 4.6% in April. Judo Bank PMI data was mixed, with services PMI in expansion territory at 53.1.

NZDUSD rose from 0.6091 to 0.6126, supported by higher Q1 retail sales, which rose 0.5% q/q compared to the consensus forecast for a 0.3% decline and a 1.8% decline previously. ASB economists suggest that the details were weak. RBNZ Governor Adrian Orr put the kibosh on future rate hikes, saying, “Another rate hike would only be meaningful if we thought inflation expectations were getting away on us again. We are confident that we will get inflation down to the 1-3% band.”

USDMXN

USDMXN dropped to 16.6219 on the heels of Mexican inflation and GDP data after trading in a 16.6430-16.6925 range overnight.  Mexican Q1 GDP rose 0.3% q/q beating the 0.2% forecast while 1^st ½  inflation fell 0.21% in line with estimates.

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

Source: Investing.com

China Snapshot

PBoC fix: 7.1098 vs exp. 7.2400 (prev. 7.1077).

Shanghai Shenzhen CSI 300 fell 1.16% to 3641.79.

USDCNY fix is at its highest level since January due to ongoing capital outflows and a strong US dollar.

Proving once again that Chinese leaders are not playing with a full deck, Xi Jinping ordered its military to begin two days of “punishment drills” around Taiwanese islands. The punishment is because newly elected Taiwan President William Lai warned his citizens “not be under any illusion about the threat from China and that Taiwan must further strengthen its defences.” He said nly Taiwan’s people can decide their future.  Xi Jinping begs to differ.

Chart: USDCNY and USDCNH

Source: Investing.com