- US 10-year Treasury yield slides, SP500 futures soar
- G-7 Summit begins Sunday
- US dollar sinks and Loonie underperforms
FX change at a glance
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.2960-64, overnight range 1.2960-98, close 1.2996
USDCAD largely ignored the improved risk sentiment tone and traded sideways in a relatively narrow range. Traders have already forgotten about the better than expected April Retail Sales data which suggested consumers were still spending despite higher prices.
They have also forgotten about the surge in Canadian inflation in May which a JP Morgan economists warn raised the risk of a 1.00% rate hike in July. A CIOBC economists disagrees saying a BoC rate hike of 1.0% would send the message that policymakers are not in control. (they aren’t, but why tell anyone?)
WTI oil prices traded in a $103.91/b-$106.16/b range as traders assess recession risks against supply issues.
The Canadian economic calendar is empty.
USDCAD technical outlook
The intraday USDCAD technicals are bullish while prices are above 1.2920, looking for a break above 1.3030 to extend gains to 1.3070. A move above 1.3070 gets nasty and opens the door to 1.3500. A break below 1.2920 targets 1.2860, which if broke, may extend losses to 1.2730.
For today, USDCAD support is at 1.2920 and 1.2880. Resistance is at 1.2990 and 1.3020. Today’s Range 1.2910-1.3010.
Chart: USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
It’s not quite the “Gunfight at the OK Corral,” but Bond bulls and Equity bears were in a heated battle yesterday and overnight.
The Bond bulls won. Investors decided that the Fed’s commitment to fighting inflation all but assures a recession is inevitable. Mr Powell described the Fed’s desire to bring inflation down to its 2.0% target is “unconditional” during day 2 of his Congressional testimony.
The 10-year US Treasury yield was already under pressure, having fallen to 3.11% before Powell’s remarks, and they continued to drop until touching 3.01% in Asia, overnight.
Equity traders ignored recession fears and focussed on lower yields. Asia equity indexes took their lead from Wall Street and Hong Kong’s Hang Seng index rallied 2.09%. European bourses have jumped aboard the bond-rally bandwagon led by a 2.00% gain in the French CAC index.
The 10-year yield bounced to 3.10% in NY trading which was enough to halt the S&P 500 futures rally, but even so, Wall Street will open with strong gains.
The equity rally is a bit of a head-scratcher as one of the reasons bonds rallied is investors fear a recession. If the bond trader view is correct, it is hard to believe the equity rally is sustainable, considering yesterday’s Fed rhetoric didn’t deviate from its hawkish interest rate outlook.
The G-7 Summit is June 26-28 in the Wetterstein Mountains of Upper Bavaria, Germany.
EURUSD is in the middle of its 1.0513-1.0554 overnight range. Prices are underpinned by broad US dollar weakness, however yesterday’s weaker than expected Eurozone PMI data combined with today’s weak Germany’s Ifo survey will limit gains.
GBPUSD is choppy in a 1.2242-1.2306 range. The improved risk tone due to rising equity markets is offset by another poor UK Retail Sales report (actual -0.5% m/m vs April 0.4%). Political uncertainty may also cap topside moves after the Conservatives lost two by-elections, putting Prime Minister Johnson’s job in jeopardy.
USDJPY sank and soared in a 134.36-135.22 range mirroring US Treasury yield fluctuations. Japanese officials continue to make noises about the “weak currency” but so far, its all talk and no action.
AUDUSD and NZDUSD posted gains on higher commodity prices and broad US dollar weakness.
Michigan Consumer Sentiment index and US New Home Sales are due.
FX open, high, low, previous close as of 6:00 am ET
Source: Saxo Bank
Today’s Bank of China Fix 6.6700, Previous 6.7079
Shanghai Shenzhen CSI 300 rose 1.17% to 4.394.77 Previous close 4,343.88
At BRICS virtual Summit, XI Jinping claims that the West’s use of sanctions weaponizes the world economy. He also says wants high quality cooperation with the BRICS.
Chart: USDCNY 1 month
Source: Yahoo Finance