November 19, 2024
- Russia ups the nuclear war risk.
- Canada October CPI inflation rises more than expected (actual 2.0 y/y (previous 1.6%)
- US dollar opens higher from yesterday, but rallies in Europe.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.4021, overnight range,1.3976-1.4107, close 1.4016
USDCAD retreated yesterday on the back of narrowing CAD/US interest rate differentials and broad-based US dollar profit-taking in the absence of actional economic data. The rally ended abruptly overnight after Russia President Putin threatened the use of nuclear weapons in Ukraine. Mad Vlad is irked because US President Joe Biden gave Ukraine permission to fire US -made missiles at Russian based targets.
USDCAD traders forgot the Russian threats after this mornings domestic inflation data. CPI rose 0.4% m/m compared to a drop of 0.4% in September, and 2.0% y/y, which is 0.4% higher than in September. Traders immediately sold USDCAD, driving it down from 1.4028 to 1.3976 as many believed that the results took a 50 bp rate cut off the table at the December meeting.
It didn’t. CPI remains well inside the BoC’s target range of 1-3% and minor inflation increases were anticipated by policymakers. The BoC is far more concerned with economic growth and Canada’s is extremely weak compared to the US. December may be the last chance for a 50 bps cut before the risk of new tariffs by the Trump administration.
The post-CPI drop in USDCAD is likely due to profit-taking as the speculative community is rather short CAD/long USD. Arguably, the 1.3940-60 area is a buying opportunity.
WTI traded sideways in a 68.49-69.38 range. Price action continues to be driven by the outlook for Chinese crude demand and the prospect of higher Opec production.
USDCAD Technicals
The intraday USDCAD technicals are bullish above 1.4000 and looking for a break above 1.4060 to extend gains to 1.4110. A move below 1.4000 suggests a shallow dip to the 1.3960-1.3980 area.
Longer term, the USDCAD uptrend from September 26 (daily chart) is intact while prices are above 1.3930 and that level is guarded by the November uptrend line at 1.3980. The previous double top at 1.3960 is additional uptrend support.
For today, USDCAD support is 1.3970 and 1.3950. Resistance is 1.4060 and 1.4110
Today’s Range 1.3970-1.4050
Chart: USDCAD 4 hour
Source: Oanda.com
Is Dr. Strangelove Vladimir Putin?
In Stanley Kubrick’s 1964 comedy “Dr Strangelove or How I learned to Stop Worrying and Love the Bomb,” is about a wheelchair-bound, eccentric ex-Nazi scientist who absurdly advocates using nuclear technology as tools to achieve goals. Russian President Vladimir Putin is just as nuts. He changed Russia’s rules for using nuclear weapons to include using them if Russia faces aggression from conventional weapons. Essentially, if he can’t have Ukraine, he will turn the country into a nuclear wasteland.
Markets React to Russia
Traders have largely ignored developments in the Russia-Ukraine war which started when Russia invaded Ukraine on February 24, 2022. Putin thought it would be over in just 30 days, but it’s 999 days later and he is getting irked. Then Ukraine used US missiles to strike into Russia. Hence the nukes. Traders have mostly ignored the conflict following the initial reaction but today, a lack of actionable data and the threat of a nuclear holocaust had them scurrying for safe-haven assets. The Japanese yen and Swiss franc rallied, and gold (XAUUSD) climbed from 2610.45 to 2636.56. The US 10-year Treasury yield dropped to 4.344% from 4.42%. European equity indexes are deep in the red. The French CAC 40 index fell 1.15% and the German Dax lost 1.11%. S&P 500 futures are down 0.40%.
EURUSD
EURUSD traded in a 1.0524-1.0601 range with the peak occurring in early Asia. Yesterday’s rally, supported by some hawkish ECB rhetoric, went off the rails with Putin’s nuclear threat and prices dropped to the session low. Eurozone inflation numbers were as expected and a non-factor.
GBPUSD
GBPUSD traded in a 1.2614-1.2689 range and its price action mirrored that of EURUSD, peaking in Asia and then bottoming out just before NY opened, due to Putin’s comments. Even so, prices were underpinned following comments by BoE policymaker Megan Greene. She said underlying inflation pressures warrant a cautious approach to cutting rates. The BoE Monetary Policy Report hearings are today.
USDJPY
USDJPY peaked at 154.70 in Asia then dropped to 153.28 in Europe due to a wave of safe-haven demand for yen. Some traders are also selling USDJPY on anticipation that the current exchange rate will encourage the BoJ to raise rates next month.
AUDUSD and NZDUSD
AUDUSD traded in a 0.6482-0.6525 range thanks to renewed risk aversion sentiment. The release of the RBA minutes from the November 5 meeting did not do anything to change expectations that the RBA will wait until May 2025 before easing monetary policy. NZDUSD dropped to 0.5875 from 0.5901 on broad US dollar demand due to risk aversion.
USDMXN
USDMXN bounced from its session low in a 20.1920-20.3346 range but the rally stalled at the week-long downtrend line which comes into play at 20.3000 today. Banxico cut rates by 25 bps last Thursday and today Governor Victoria Rodriguez said, “Given the progressof disinflation, we believe that we can continue with the cuts to the reference rate.”
BTCUSD (Bitcoin)
BTCUSD chopped about in an 89,500-92,536 range with the downside supported by expectations that President-elect Trump will enact crypto-friendly policies.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1911 vs exp. 7.2305 (prev. 7.1907)
Shanghai Shenzhen CSI 300 rose 0.67% to 3976.89
Chart: USDCNY and USDCNH
Source: Investing.com
