- Powell pushes back against 0.75 bp rate hikes
- GBPUSD sinks after BoE hikes rates
- USD opens sharply lower in wake of Fed
FX change at a glance: 24 hours
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.2742-46, overnight range 1.2715-1.2763, previous close 1.2737
USDCAD bulls joined the post-Fed announcement stampede for the exit. USDCAD gave back all its gains since April 30, falling from 1.2850 yesterday morning to 1.2715 overnight. A sharp rise in oil prices supported the move.
WTI climbed 6.7% since Tuesday with prices touching 108.95 in Europe. EU plans to embargo Russian oil is boosting prices while fears of lower demand from China slow gains.
Today’s USDCAD direction will be dictated by Wall Street. If stocks rally, USDCAD will drop and vice-versa. However, the BoC will match or exceed Fed rate hikes which should act as a drag on USDCAD gains.
USDCAD technical outlook
The USDCAD technicals are bearish. The failure to sustain gains above 1.2900 and the subsequent drop below 1.2820, suggests further downside, while prices are below 1.2850. A decisive break below 1.2740 (38.2% Fibonacci of the April 21-May 2 range), targets the 61.8% level at 1.2630.
For today, USDCAD support is at 1.2720 and 1.2680. Resistance is at 1.2805 and 1.2850. Today’s Range 1.2710-1.2790
Chart: USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
The “buy the rumour, sell the news” adage proved very accurate in the aftermath of the FOMC meeting.
The US dollar rallied hard ahead of the meeting as traders anticipated either a 0.75% rate hike or a “heads-up” that a 0.75% hike was coming at the next meeting. No such luck. Fed Chair Jerome Powell stomped all over that notion saying, “A 75-basis-point increase is not something the committee is actively considering,”
The greenback tanked, Wall Street surged, oil climbed, and bonds rallied. The reaction is a bit of a “head-scratcher.”
The Fed explicitly states that US rates are going steadily higher and likely above the neutral rate, suggesting at least two more 0.50% hikes at the next two meetings. Simultaneously the Fed announced plans to reduce its balance sheet.
Powell admitted the Fed misread the impact and duration of supply disruptions, said Russia’s invasion of Ukraine will likely create upward inflation on inflation while further disrupting global supply chains.
Meanwhile, China still aspires to annex Taiwan, Iran still agitates in the Middle East, and North Korea is testing missiles and talking nukes.
Despite all of the above, traders say, “No worries, be happy” and buy the so-called risk assets.
European equity indexes are sharply higher, with the French CAC index gaining 1.77% and the German DAX index rising 1.40%. WTI oil prices jumped 4.0%, gold is 1.5% higher, and the US 10-year Treasury yield is steady at 2.86%.
US weekly jobless claims sores 19,000 to 200,000 in the week ending April 30.
EURUSD jumped to 1.0630 from 1.0520 following the FOMC, consolidated in a 1.0583-1.0641 range overnight, then retreated further in NY, dropping to 1.0547. Gains were limited due to the ongoing Russian invasion of Ukraine and concern that the planned EU embargo on Russian oil will exacerbate economic woes. The intraday EURUSD technicals are bearish below 1.0650.
GBPUSD rallied from 1.2465 to 1.2635 in the wake of the Fed meeting, with stop losses in the 1.2550 area, fueling gains. Prices plunged to 1.2363 after the Bank of England hiked rates 0.25% today and warned of rising recession risks. The BoE predicted UK GDP falling to 0.25% in 2023 while inflation climbs to 10% in 2022. GBPUSD technicals are negative below 1.2660.
USDJPY soared to 130.33 post-Fed, then sank to 128.70 moments later as US 10-year Treasury yield gave up gains. Prices ticked higher overnight rising from 128.76 to 129.82. The risk of fresh safe-haven demand for yen, and the threat of central bank intervention are acting as drags on gains above 130.00.
AUDUSD and NZDUSD posted gains due to firmer commodity prices and improved risk sentiment.
Chart: GBPUSD 30 minute
Source: Saxo Bank
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
China Snapshot –
Today’s Bank of China Fix 6.5672 Previous 6.6177
Shanghai Shenzhen CSI 300 fell 0.15% to 4,010.21
April Caixin Services PMI 36.2 (forecast 40, March 42)
The introduction of tighter COVID-19 containment measures in China led to quicker reductions in service sector business activity and overall sales in April. Notably, both activity and new orders fell at the second-sharpest rates since the survey began in November 2005, and were exceeded only by those seen at the initial onset of the pandemic in February 2020
Chart: USDCNY 1 month
Source: Yahoo Finance