January 3, 2023

  • Big banks forecasting US recession in 2023
  • German inflation drops to 8.6% in Dec, compared to 10% in Nov
  • US dollar kicks off 2023 with robust gains.

FX at a glance-December 30 close to January 3, NY open

Source: IFXA Ltd/RP

FX at a glance- close December 31, 2021, to December 30, 2022, close

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3632-36, overnight range 1.3525-1.3677, close 1.3546

Welcome back. USDCAD started the year with bang, a fizzle, and another bang, and extended overnight gains in NY trading.

It wasn’t alone. All the major G-10 currencies, except JPY suffered the same fate.

USDCAD is supported by the rather dreary outlook for the Canadian economy in 2023. The Canadian economy is expected to be in a mild recession in the first half of the year which will increase unemployment but start to recover in the second half.

USDCAD is supported by divergent Bank of Canada and Fed monetary policy outlooks. The BoC hinted that it is close to its terminal rate while the Fed has at least another 75 bps of rate hikes in the pipeline.

USDCAD has a love/hate relationship with crude oil and that relationship is on a break. The Federal governments anti-oil policies have greatly reduced foreign investment and by default USDCAD selling pressure when WTI prices rise. WTI prices may rally towards the $100.00/b area on renewed Chinese demand and another Opec production cut, especially if the latest Russian oil sanctions actually impact oil supply. WTI is trading at $79.42/b in NY, after trading in a $77.75-$81.46/b since Dec. 30.

 USDCAD technical outlook.

The intraday and short term technicals are rangebound, albeit with a bullish bias in a 1.3460-1.3700 band. A topside break will extend gains to 1.3860 while a downside move puts 1.3230 in play. Momentum indicators point to USDCAD is becoming overbought while Bollinger bands suggest 1.3670 will be strong resistance.

For today, USDCAD support is at 1.3580 and 1.3540.  Resistance is at 1.3670 and 1.3710

Today’s range 1.3590-1.3690

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The first trading day of 2023 saw light volumes but large trading ranges against a backdrop of escalating geopolitical risks and heightened global recession fears.

Over two-thirds of the economists at 23 large financial institutions are predicting a US recession in 2023 according to the Wall Street Journal. The recession is due to reduced consumer spending as pandemic savings get eroded and falling house prices in the face of higher and higher US interest rates.

Traders are looking ahead to the release of the FOMC minutes from the December 14 meeting.

European stock indexes rallied to start the year but are trading below their best levels in NY. The UK FTSE 100 index is up by 1.26% while the German Dax has gained 0.72%. and an 0.88% rise in the German Dax index. S&P Futures have been choppy but are 0.44% higher.

 Geopolitical risks helped lift gold (XAUUSD) to $1840.00 a $16.00 gain while the US 10-year Treasury yield dropped from 3.88% at year end to 3.748% today.

EURUSD traded in a 1.0521-1.0708 range since the December 30 close and is at 1.3560 in NY. The single currency is weighed down by fears from the ongoing Russian/Ukraine war. Traders did not react to comments by ECB President Christine Lagarde advocating the need for higher rates to prevent inflation from “becoming entrenched.” German CPI fell to 8.6% in December from 10% in November which suggests inflation may have peaked

GBPUSD is trading widely in a 1.1902-1.2099 range thanks to economic concerns from the ongoing rail strike and weak economic data. The S&P Global/CIPS Manufacturing PMI dropped to 45.3 in December. That news came on the heels of a Financial Times article claiming economists predict the UK will face one of the worst recessions in recent memory.

USDJPY churned in a 129.52-131.12 band as traders’ position for the Bank of Japan to end its ultra-low monetary policy in the coming months.

AUDUSD dropped from 0.6818 to 0.6696 before climbing to 0.6740 in NY. Prices are under pressure because of divergent RBA and Fed interest rate outlooks, and because of modestly disappointing chinse PMI data.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.9475, Dec. 30, 6.9646, Dec. 29, 6.9793

Shanghai Shenzhen CSI 300 rose 0.42% to 3887.90

Caixin Manufacturing PMI 49 (forecast 48.8, previous 49.4)


Source: Bloomberg