January 16, 2023

  • Traders positioning for another hawkish tweak at BoJ meeting
  • US Markets closed for Martin Luther King Day
  • US dollar trading quietly and defensively, but above recent lows

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3384-88, overnight range 1.3355-1.3416, close 1.3395

USDCAD it tracking broad-US dollar moves with prices rebounding from overnight session lows on profit-taking ahead of Canadian inflation data Tuesday.  Canada CPI headline is expected to fall to 6.3% y/y from 6.8% in November while Core-CPI rises to 6.1% y/y from 5.8% y/y.  The results ensure the BoC raises the overnight rate by 25 bps on January 25.

The BoC Business Outlook Survey (BOS) is due but it is a different looking world today then when the survey was conducted in mid-November/early December.

Oil traded in a $78.82/barrel-$80.17/b range with gains underpinned by hopes that Chinese demand increases while Russian sanctions lowers supply.

The US is closed for Martin Luther King Day which suggests quiet trading with light volumes. 

Statistics Canada releases November Manufacturing Sales data (forecast -01.% m/m vs previous 2.8% m/m)

USDCAD technical outlook.

USDCAD is in a ragged intraday downtrend channel that started at the beginning of the year and is bordered by 1.3420 at the top and 1.3220 on the bottom.  A topside break will extend gains to 1.3470, then 1.3570.  A move below 1.3340 opens up a clear shot to 1.3210.

For today, USDCAD support is at 1.3370 and 1.3330.  Resistance is at 1.3420 and 1.3460.

Today’s range 1.3340-1.3410

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

It’s a quiet start to the week although risk sentiment remains positive, and the US dollar is on the defensive.

Chatter around the US debt ceiling is merely a distraction as both parties realize shutting the government is not strategy that endears politicians to voters.

Russian continues to launch missile strikes at military targets located in nursey schools, hospitals, and apartment buildings. Vlad Putin claimed everything is going to plan as long as the plan included a prolonged war, ceding prior claimed territory and firing two overall military commanders.

China has fessed up and reported that covid hospitalizations reached 128,000 on January 5. The Hindustan Times reported “A study published in the journal Nature Medicine claimed that nearly all of Beijing’s 22mln residents will be infected with COVID-19 by the end of January.

Traders continue to believe that the Fed will cut interest rates before the end of the year despite Fed officials claims to the contrary.

Asia markets closed higher, except for Japan’s Nikkei 225 index which fell 1.14% due to the rising yen, and ahead of the BoJ meeting. European bourses are modestly firmer in a low volume session with the German Dax rising 0.20%.  S&P 500 futures are down 0.38% in thin trading.

EURUSD is trading at 1.0817 in Toronto, after dropping then bouncing, in a 1.0803-1.0873 range overnight. German wholes prices decreased by 1.6% in December. The intraday EURUSD technicals are targeting 1.0950 while above 1.0750.  German wholesale prices fell 1.6% in December.

GBPUSD traded in a 1.2173-1.2288, peaking in Asia and bottoming out in Europe. GBPUSD continues to be underpinned by Friday’s better than expected GDP data and by reports of a thawing in EU/UK Brexit tensions over Northern Ireland. GBPUSD technicals are bullish above 1.2110.

USDJPY consolidating gains in the 128.40 area, after trading in a 127.23-128.86 range overnight.  The gains are due to position adjusting ahead of Wednesday’s Bank of Japan meeting, when a modestly hawkish outcome is expected.

AUDUSD peaked in Asian at 0.7018 then dropped to 0.6959 in Toronto, just above the session low of 0.6942. The price action is due to profit taking after last week’s robuist gains.

There US data calendar is empty.

FX open, high, low, previous close as of 6:00 am ET

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.7135, previous 6.7292

Shanghai Shenzhen CSI 300 rose 1.56% to 4137.96

China admits to nearly 60,000 Covid deaths since easing restrictions in December, but authorities still wonder why other countries are not eager to welcome Chinese tourists.

Chart: USDCNY one month

Source: Bloomberg