Source: Pixabay

November 24, 2022

  • Dovish reaction to FOMC minutes
  • Trading volumes light due to US Thanksgiving and World Cup
  • US dollar slides sharply, JPY gains 2.3%

FX at a glance:

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3341-45, overnight range 1.3330-1.3360, close 1.3354

USDCAD dropped following the more dovish than expected FOMC minutes then consolidated the losses overnight.

USDCAD was pressured by narrowing CAD/US interest rate differentials with the spread at -71.6, in the US favour. However, the downside was limited when oil prices dropped.

WTI oil prices attempted to rally this week, but the gains were derailed by fears rising covid cases in China would lower demand. WTI traded in a $77.24-$78.10/b range overnight and the short term technicals are bearish and looking for a test of support at $73.30/b.

BoC Tiff Macklem testified before the House of Commons and stuck to his script that rates need to rise further.

FX trading will be very limited today.

USDCAD Technical outlook

The intraday USDCAD technicals are bearish with the failure to break above 1.3440 yesterday and then the subsequent breach of support at 1.3360. A downside breaks below 1.3290 targets support at 1.3220 which has been the USDCAD bottom since the middle of September.

For today, USDCAD support is at 1.3320 and 1.3290.  Resistance is at 1.3360 and 1.3390.

Today’s range 1.3290-1.3360

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

It is US Thanksgiving today and it is fitting that the US dollar is the turkey amidst the FX majors.  A dovish read on the FOMC minutes from the November 2 meeting, and optimistic data from the German ifo Institute encouraged those few traders that were interested, to sell US dollars.

The FOMC minutes showed that the Committee may not have had as hawkish a view of the US rate that was implied by Fed Chair Jerome Powell in his post meeting press conference.  Mr Powell said it was “very premature to be thinking about pausing. We have a ways to got on rates, and the ultimate level of rates will be higher than previously expected.”

However, the minutes revealed that “a substantial majority substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.” 

Traders concluded that a 75-bps rate hike in December was unlikely, and the Fed would be content with a 50 bp rate bump.

The result was that Wall Street rallied and the US dollar sank.  Oil prices plunged the fall was exacerbated by rising Covid cases in China.

Asian equities rallied on the back of the dovish FOMC minutes with Japan’s Nikkei 225 gaining 0.95%. European bourses are moderately higher in quiet trading due to the US holiday and the World Cup. S&P 500 futures have risen 0.18% and gold gained 1.08% since Wednesday’s US open.  The US 10-year yield is 3.689%, unchanged from yesterdays close.

Sweden’s Riksbank hiked rates by 75 bps to 2.5% in an ongoing effort to fight inflation after Core inflation rose 7.9% in October.  Meanwhile, Turkey slashed its bank rate by 1.5 bps to 9.0% to fight inflation which is at 85.5%.  Hmm, someone skipped economics 101.

EURUSD rallied from 1.0301 yesterday to 1.0448 in Europe before sliding to 1.0405 in early Toronto trading. The gains were powered by the dovish FOMC minutes despite the fact that traditionally 50 bp rate hikes were considered aggressive. Prices also climbed following hawkish remarks from ECB officials, Centeno and Vasle.  In addition, the German ifo Business Climate rose to 86.3 from 84.5 in October as companies were less pessimistic about the outlook in coming months.  The short term EURUSD technicals are bullish above 1.0230, looking for a break above 1.0450 to extend gains to 1.0630.

GBPUSD is near the top of its 1.2053-1.2125 range. Wednesday, BoE Chief Economists Huw Pill said UK rates need to rise further “in order to address inflationary pressures and complete the normalization of monetary policy.” Today, Deputy Governor Dave Ramsden agrees, sort of.  He said, “Although my bias is towards further tightening, if the economy develops differently to my expectation and persistence in inflation stops being a concern, then I would consider the case for reducing Bank Rate, as appropriate.” GBPUSD technicals are bullish and looking for a test of resistance at 1.2270.

USDJPY dropped 2.3% since Wednesday’s open following the dovish FOMC minutes and the narrowing of JGB/UST spreads.

AUDUSD traded quietly in a 0.6729-0.6767 range with demand from broad US dollar weakness offset by rising China covid cases.

There are no US economic reports today.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 7.1201, previous 7.1281

Shanghai Shenzhen CSI 300 fell 0.44% to 3756.81

 China State Council issued memo telling PboC to use all monetary tools including Reserve Ratio Requirement (RRR) cuts to support economy.

Daily covid cases rise to 31,444.

Chart: USDCNY 1 month

Source: Bloomberg