Source: IFXA Ltd/RP
FX Recap and Outlook: Financial markets started the new month in a Sea of Tranquility compared to the frenzied finish to February. Month-end portfolio rebalancing flows distorted price action Thursday and Friday, creating wild swings in prices.
The news that Johnson and Johnson’s single-dose COVID-19 vaccine was approved in the US stoked global economic rebound hopes. China’s Caixin Manufacturing PMI (50.9) was lower than expected (51.5) but still in expansion territory, and also supported the global economic rebound story.
Risk sentiment got an added lift after the US House approved Biden’s $1.9 trillion stimulus plan.
US 10-year Treasury yields drifted higher, rising from 1.395% in Asia to 1.446 in NY. The battle between bond traders and the Fed continues to rage. Bond traders are worried about the inflation implications from the next round of US stimulus. The Fed say’s “don’t worry-be happy.” Jerome Powell and six other Fed officials will be doing their best Pharrell imitation this week.
EURUSD traded sideways in Asia and slid in Europe, falling from 1.2100 to 1.2029. The single currency did not get support from better than expected EU Manufacturing PMI data (actual 57.9 vs forecast 57.7). Traders are looking ahead to ECB President Christine Lagarde’s speech today, hoping to hear her take on rising yields.
GBPUSD is trading in the middle of its 1.3929-1.3998 range. Prices are consolidating losses since peaking at 1.4230 last Wednesday. Manufacturing PMI was 55.1 in February (forecast 54.9). Traders are cautious ahead of the UK budget announcement Wednesday.
USDJPY is trading at the top of its overnight 106.38-106.73 range underpinned by steady to firm US 10 year yields and bullish technicals targeting 107.50.
AUDUSD climbed steadily rising from 0.7706 in Asia, reaching 0.7772 just before Europe opened, then retreated to 0.7728 in NY. The RBA announced it was doubling its purchases of longer-maturity government bonds, a clear sign that world central banks will intervene to cap rising yields.
USDCAD was under pressure from the Asia open falling from 1.2735 to 1.2677 in early NY trading. Broad US dollar weakness, steady to firm oil prices and bearish technicals are weighing on prices.
Speeches from NY Fed President John Williams and Fed Governor Lael Brainard will be studied for insight on Fed concerns about rising yields. The main data is US ISM Manufacturing PMI (forecast 58.8 vs previous 58.7).
USDCAD Technicals: The intraday USDCAD technicals are bearish while trading below 1.2730, looking for a break of 1.2670 to extend losses to 1.2620 then 1.2550. A decisive break above 1.2740 targets 1.2830. For today, USDCAD support is at 1.2670 and 1.2620. Resistance is at 1.2730 and 1.2760. Todays Range 1.2630-1.2730
Chart: USDCAD 4 hour
Source: Saxo Bank
FX open (6:00 am EDT) High, Low, and previous close
Source: Saxo Bank