August 26, 2024
- Geopolitics sour post-Jackson Hole risk sentiment.
- UK markets closed for holiday
- US consolidating Friday’s losses.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.3510, overnight range 1.3493-1.3516, previous close 1.3514
USDCAD is under pressure after following below key support at 1.3560. The breach of that level triggered stop loss selling as speculative short Canadian dollar positions were being unwound. As of August 20 those positions equate to $16.4 billion. The size of the outstanding positions combined with the shift in global risk sentiment and increased expectations for deeper and faster US rate cuts, suggests USDCAD gains will be limited.
The outlook for the Canadian economy improved after the government pre-empted a strike by CN and CPKC rail workers by issuing a binding arbitration order. Nevertheless, the brief railway stoppage has created a 5-10 day shipping backlog.
WTI oil prices traded firmer, rising from 75.06 to 76.84 in early NY due to elevated Middle East tensions and by hopes for increased demand as global risk sentiment improves.
US Durable Goods Orders rose 9.9% in July (previous -6.9%)
Source: US Census Bureau
USDCAD technicals
The intraday USDCAD technicals are bearish with a downtrend channel between 1.3470 and 1.3570 (4-hour chart) guiding prices lower. The move below 1.3560, which previously was major support has reverted to resistance.
Longer term, USDCAD crushed support at 1.3560 (50% Fibonacci retracement level of 1.3190-1.3945, 2024 range) and has set its sights on the 61% Fibonacci level at 1.3465.If the latter level is broken decisively, further losses to 1.3350 are in the cards.
For today, USDCAD support is at 1.3470 and 1.3450. Resistance is at 1.3520 and 1.3550. Today’s Range 1.3460-1.3520.
Chart: USDCAD daily
Source: DailyFX
Traders Have Selective Hearing
On Friday, Fed Chair Jerome Powell said, “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” Traders heard “50 bp rate cut in September.” Stocks soared, the greenback tanked, and the US 10-year Treasury yield plunged to 3.66% before bouncing back to 3.787% today.
Full Steam Ahead but Watch Out for Torpedoes Bond traders looking for aggressive Fed rate cuts have been wrong-footed all year and are conveniently ignoring the rise of geopolitical issues with Ukraine’s invasion of Russia and the drone attack on Moscow. In addition, analysts fear an escalation of hostilities between Israel and Iran after Hezbollah fired 320 missiles at “military targets” in Israel. China stepped up its harassment of Philippine ships in Philippine South China Seas waters. In addition, China said it has stepped up armed patrols near its Myanmar border while simultaneously flying fighter jets into Taiwan airspace. It wouldn’t take much to trigger a massive risk-off stampede.
Equity Markets are Mixed
Asian stock indexes closed mixed. Australia’s ASX 200 rose 0.76%, while Japan’s Topix fell 0.87%. Hong Kong’s Hang Seng index climbed 1.06%. European bourses are flat to negative, with the German DAX down 0.30%. S&P 500 futures are up 0.17%.
EURUSD:
EURUSD is consolidating gains in a 1.1170-1.1202 range after soaring from 1.1105 to 1.1190 on Friday in the wake of Powell’s Jackson Hole speech. The German ifo Sentiment Index declined to 87 from 88.6 in June. Traders ignored Germany’s economic woes. ECB Chief Economist Philip Lane gave the single currency a bit of support when he cautioned that getting inflation to 2.0% is “not yet secure. The monetary stance will have to remain in restrictive territory for as long as needed.” The EURUSD technicals are bullish, with the August uptrend line intact while prices are above 1.1060, a level guarded by the double bottom at 1.1090.
GBPUSD:
GBPUSD hung onto Friday’s gains and traded in a 1.3183-1.3225 range. On Friday, Bank of England Governor Andrew Bailey said, “The second-round inflation effects appear to be smaller than we expected. But it is too early to declare victory,” suggesting that he is in no hurry to cut UK rates. GBPUSD is in an uptrend channel between 1.3140 and 1.3270. UK markets were closed, which is probably a good thing as 20 million motorists are expected to clog highways and byways throughout the country.
USDJPY:
USDJPY plunged Friday, falling from 146.50 to 144.05, then fell further overnight and traded in a 143.45-144.47 range. The combination of recent hawkish comments from BoJ Governor Ueda suggesting Japanese rates would still be going higher and Powell confirming US rates were heading lower weighed on the currency.
AUDUSD and NZDUSD:
AUDUSD traded in a 0.6770-0.6798 range, with gains underpinned by Fed Powell’s dovish US rate outlook and the RBA minutes revealing policymakers were reluctant to cut rates. Traders are looking ahead to Wednesday’s Australian inflation data. NZDUSD rallied hard on Friday, rising from 0.6139 to 0.6234, then drifted in a 0.6202-0.6233 range overnight.
USDMXN:
USDMXN retreated from 19.5430 to 19.0203 on Friday, then traded with a bid in a 19.0940-19.3100 range overnight. Traders are digesting the dovish outlook for US rates and concerns over Mexico’s proposed judicial reforms.
Bitcoin (BTCUSD):
BTCUSD rallied following Powell’s speech on Friday and then consolidated the move in a 63,355-65,200 range overnight.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1139 vs exp. 7.1132 (prev. 7.1358)
Shanghai Shenzhen CSI 300 fell 0.09% to 3324.22
PBoC leaves 1-year Loan Prime Rate (LPR) unchanged at 2.3%. Credit Agricole economists are forecasting another 25-50 bp rate cuts by year end.
Chart: USDCNY and USDCNH
Source: Investing.com
