July 26, 2024
- Tech stock plunge roils global markets.
- US Q2 GDP rise 2.8% y/y (forecast 2.0%)
- US dollar opens firmly, adds to yesterdays gains.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.3837, overnight range 1.3803-1.3844, previous close 1.3809
USDCAD caught a bit of a bid yesterday after the Bank of Canada surprised no one and lowered its overnight rate by 25 bps to 4.50%. It wasn’t the rate cut that sparked USDCAD demand but Governor Tiff Macklem’s dovish tone that left the door open for two or three more rate cuts this year that helped boost prices.
Despite all that, the rally is underwhelming especially considering the global demand for safe-haven US dollars and the decline in oil prices. The lack of upside may be attributed to existing positions as the market is well long USDCAD.
WTI oil traded in a 76.12-77.54 range with traders ignoring the 3.741 million decline in US crude inventories as reported by the EIA. They are more concerned about an oil glut in Q4 as Chinese demand shrinks and Opec boosts production.
USDCAD Technicals
The intraday USDCAD technical are bullish. USDCAD bottomed out on July 11 and has rallied steadily ever since. The hourly uptrend line is intact while prices are above 1.3750 and that level is guarded by support in the 1.3790-1.3810 area. A decisive break above 1.3850 targets 1.3905, the November 2, 2023 peak in the 1.3990 area.
Fibonacci retracement studies shows that the decisive break above 1.3748 (78.6% retracement of Nove-Dec. 2023 range has set the stage for a 100% retracement at 1.3900.
For today, USDCAD support is at 1.3790 and 1.3760. Resistance is at 1.3850 and 1.3890. Today’s Range 1.3790-1.3890
Chart: USDCAD daily
Source: DailyFX
US Economy Still Percolating.
You can’t keep a good man down or it seems, the US economy. The American economy grew 2.9% in Q2, as is continues to demonstrate its resilience despite Fed Chair Powell’s best efforts. Weekly jobless claims fell by 10,000 last week and Durable Goods Orders, ex-Transportation rose 0.5%. That’s is a pretty stellar economic performance and will continue to underpin the US dollar.
Chicken Little Got it Right
The sky may not be falling, but tech stocks sure are, and the slide is wreaking havoc in global markets, sparking a flight into the US dollar and other safe-haven currencies. Traders were disgruntled with earnings reports from Tesla and Alphabet, which were released after-hours on Tuesday, and by the time Wall Street closed yesterday, the NASDAQ had shed 3.64%. In Asia, government officials, spooked by a lack of consumer spending and slow economic growth, told the People’s Bank of China (PBoC) to cut interest rates. They did, trimming the 1-year Medium Term Lending Facility by 20 bps.
Biden Sings the Blues
President Joe Biden finally acknowledged that he was so far past his “best before date” he remembered when the Dead Sea Scrolls were just sick. “It’s time for a fresh, younger voice,” he proclaimed in a hoarse, raspy voice. He listed his accomplishments, although he forgot to mention that he was one of the original signers of the Declaration of Independence. He endorsed Kamala Harris, which in effect concedes the race to Trump.
Equities Continue to Swoon
Asian equity indexes closed deep in negative territory, led by a 2.98% plunge in Japan’s Topix index, while Australia’s ASX 200 lost 1.29%. European bourses are down, with a 2.02% drop in the French CAC index leading the parade. S&P 500 futures are down 0.11%. Gold (XAUUSD) dropped from 2,407.20 yesterday to 2,365.98 overnight before climbing back to 2,374.90 in NY.
EURUSD
EURUSD traded in a 1.0828-1.0859 range with the low seen in Asia, and the German Ifo Survey data didn’t help. Indicators for Business Climate, Current Assessment, and Expectations were below expectations and the June results. However, the results support calls for the ECB to cut rates in September and December.
GBPUSD
GBPUSD is trading in a 1.2860-1.2917 band due to stock market weakness sparking risk aversion and fueling demand for US dollars. The BoE is expected to cut rates by 25 bps on August 1.
USDJPY
USDJPY continues to slide, falling from 153.97 in Asia to 151.94 just before the NY open. The selling pressure stems from speculation that the BoJ will kick off an interest rate hiking campaign by raising rates by 0.10% on July 31 and from safe-haven demand for yen due to the global stock market sell-off. In addition, it is rather likely that BoJ officials added to the selling with more intervention as they get a bigger bang for their buck (yen) by hitting a falling USDJPY market.
AUDUSD and NZDUSD
AUDUSD is at its session low after trading in a 0.6515-0.6583 overnight. The currency pair is being hammered because of soft commodity prices, China’s economic growth woes, and broad US dollar strength today. NZDUSD mirrored AUDUSD moves and is at the bottom of its 0.5883-0.5936 range for all the same reasons as AUD.
USDMXN
USDMXN rallied from 18.3389 to 18.5887 in the wake of carry-trade unwinding. Even if Banxico cuts rates by 25 bps, the Mexico/US interest rate differential is still substantial. The latest rally is more of a “herd mentality” than a trend change.
Bitcoin (BTCUSD)
BTCUSD traded in a 63,929-67,241 range due negative risk sentiment.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1321 exp. 7.2706 (prev. 7.1358).
Shanghai Shenzhen CSI 300 fell 0.55% to 3399.27.
PBoC surprises market by cutting its 1-year Medium Term Loan facility rate by 0.20% to 2.3%. I is the first cut in nearly a year. Analysts suggest the cut is because authorities are concerned about the lack of consumer spending. Sceptics do not think this or the earlier repo rate cut will do much to improve economic growth.
Chart: USDCNY and USDCNH
Source: Investing.com
