Source: Wikimedia Commons
- German Ifo index falls for 6th month in a row
- EURUSD defensive on Fed and ECB divergence
- Risk sentiment sours to end the week
Weekly FX at a Glance
Source: IFXA Ltd/RP
USDCAD Snapshot Open 1.2808-12, Overnight Range 1.2775-1.2828 Previous close 1.2776
USDCAD started Friday’s NY session just about in the middle of its 1.2708-1.2935 range for the week. Traders are ignoring domestic data, including this weeks 4.7% y/y inflation reading in November, which although expected remains well above the BoC’s floating inflation target. The inflation news was just one in a number of robust domestic economic reports, that give the BoC plenty of fuel to raise interest rates, perhaps as early as March. Even so, the Canadian dollar is posed to finish as the worst performing G-10 currency against the US dollar this week.
USDCAD direction is highly correlated with S&P 500 moves and that index has traded erratically in a 4698-4727 range this week.
Technical view: The intraday USDCAD technicals are bullish above 1.2770, looking for a break above 1.2830 to extend gains to 1.2890. A break below 1.2770 targets 1.2690. A break of 1.2690 negates the end of October uptrend and suggests further losses to 1.2541, the 61.8% Fibonacci retracement level of the October December range.
For today, USDCAD support is at 1.2770 and 1.2730. Resistance is at 1.2830 and 1.2870. Today’s Range 1.2750-1.2830.
Chart USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
Three monetary policy meetings and three different outcomes. The BoE raised rates a smidgen, the Fed talked a big game but no action, and the ECB is awaiting further data. Nothing is settled and markets are skittish
Risk sentiment soured overnight due to a mix of Omicron concerns and new US sanctions on China. Asia equity indexes closed with losses, except for the Australian ASX 200, bolstered by higher commodity prices. European bourses are in the red, the UK FTSE 100 is modestly higher, and Wall Street futures are slumping. Gold gained 0.65%, while WTI fell 1.74%. The US 10-year Treasury yield slid to 1.397% in NY trading, largely due to year-end flows.
EURUSD snapped the end of October downtrend line at 1.1310 yesterday following the ECB monetary policy meeting, but the rally stalled at the 1.1380 resistance area. Prices traded in a 1.1313-1.1348 range overnight, and even Euro zone inflation confirmed at 4.9% y/y didn’t help. That’s because the ECB still believes inflation is transitory and will leave interest rates unchanged in 2022. Another soft German Ifo survey also undermined EURUSD. In addition, the Bundesbank downgraded its 2022 German growth outlook to 4.2% from 5.2% previously.
GBPUSD failed to build on the momentum from yesterday’s somewhat surprising BoE 0.15% rate hike, which to the overnight rate to 0.25%. GBPUSD climbed to 1.3375 after the news. Prices retreated steadily and GBPUSD is at the bottom of its 1.3283-1.3338 range. Rising Omicron cases and new restrictions combined with ongoing EU/UK Brexit issues are weighing on prices.
USDJPY traded with a negative bias in a 113.45-113.84 band with prices weighed down by safe-haven demand for yen and soft US Treasury yields. The BoJ surprised no one when it left monetary policy unchanged.
AUDUSD and NZDUSD drifted lower overnight on modestly negative risk sentiment. NZDUSD losses were exacerbated after a business confidence survey fell to -23.2 from -16.4 in December.
The important Euro area data has been released, and there are not any top tier US reports on tap, leaving US dollar direction dictated by risk sentiment.
Chart of the Day: EURUSD daily
Source: Bureau of Labor Statistics
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
Today’s Bank of China Fix 6.3631, Previous 6.3637
Shanghai Shenzhen CSI 300 fell 1.69%%% to 4,954.76
US Senate approves bill banning imports from China’s Xinjiang province. China Premier reportedly said US firms boycotting Xinjiang will be banned in China.
Chart: USDCNY 1 month
Source: Yahoo Finance