Source: HDClipart

June 1, 2022

  • Eurozone Manufacturing PMI ticks higher, German Retail Sales disappoint
  • Deutsche Bank predicting one 0.50% rate by ECB
  • EUR and CAD are best performing major-G-10 currencies in May

FX change in May

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2639-43, overnight range 1.2627-1.2671, close 1.2638,

USDCAD opened near the bottom of its recent range, then pushed below in early NY trading. Prices are weighed down by higher commodities, including oil, and the risk of a hawkish Bank of Canada monetary policy statement.

Analysts at ING Bank analysts argued that the BoC could hike by 0.75% citing high inflation, elevated commodity prices, and a strong economy. However, yesterday’s GDP data suggests little chance of that happening.

For starters, Statistics Canada expects a further growth slowdown in April suggesting GDP will only rise 0.2% m/m.

In addition, the BoC is unlikely to make such an aggressive rate hike move with out Governor Tiff Macklem available to defend it, and he doesn’t have a post MPR press conference scheduled today.

WTI oil prices continue to flirt shamelessly with the $120.00/barrel level. WTI traded in a $114.63/b-$116.91/b range overnight after peaking at $119.42/b yesterday. Prices are underpinned by the EU’s ban on a significant portion of Russian oil imports and by talk that some Opec members are considering suspending Russia from an oil-production deal, which would allow the rest of Opec to pump more crude. The move may be a result of Russia shifting pipeline production to oil tankers for delivery to China and India, Opec’s traditional market.

Today’s US data will probably overshadow the BoC rate hike

 USDCAD technical outlook

The intraday USDCAD technicals are bearish below 1.2680, looking for a move below 1.2640 to extend losses to 1.2550.  A break above 1.2680 targets 1.2750.  Longer term, Fibonacci analysis suggests that a decisive breach of 1.2671 on a daily chart, suggests additional weakness to 1.2570, the 76.4% retracement level of the April-May range. Below the latter level, suggest a test of 1.2460.

For today, USDCAD support is at 1.2610 and 1.2550.  Resistance is at 1.2680 and 1.2750.  Today’s Range 1.2610-1.2710.

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

June came in like a lamb. Traders did not find anything new to get excited or afraid about, so they reverted to being undecided about focusing on the US interest rate outlook or geopolitics. It is still undecided.

The UK, even after Brexit, is still the most important financial market in Europe, and traders there are looking to get an early start on an extended Platinum Jubilee weekend that starts tomorrow.

Asian equity indexes closed on a mixed note. Japan’s Nikkei 225 and Australia’s ASX 200 finished with small gains while the mainland Chinese indices were in the red. European bourses are undecided. The UK FTSE 100 recouped earlier losses and is flat while the German Dax ticked up 0.30%. US equity futures project a positive open on Wall Street. Oil prices are higher, gold is lower, and the US 10-year Treasury yield is 2.86%.

EURUSD is trading in a 1.0703-1.0739 band. German and eurozone data failed to provide much in the way of direction. German Retail Sales disappointed after they fell 0.4% m/m in April rather than rise 4.0% m/m. Eurozone Manufacturing PMI rose 54.6 as expected, while the unemployment rate was slightly worse than expected at 6.8%. Another ECB official, Robert Holzmann suggested a 0.50% rate hike would send a “clear signal” that policymakers were serious about fighting inflation. Analysts at Deutsche Bank agreed and predicted a 0.50% hike in July or September.

GBPUSD is adrift in a 1.2561-1.2615 range. Manufacturing PMI dropped from 55.8 in April, to 54.6 in May, a 16-month low and House Price growth slowed to 11.2%. Fears of stagflation are undermining the currency.

USDJPY rallied, rising from 127.54 yesterday to 129.60 in NY today. The gains are on the back of broad US dollar weakness and the rebound in the US 10-year Treasury yield. BoJ Deputy Governor Wakatabe reiterated that the BoJ will maintain its easy monetary policy.

AUDUSD is at the top of its 0.7160-07221 range due to higher commodity prices, a generally soft US dollar and higher than expected Q1 GDP which rose 3.3% y/y (forecast 3.0% increase).

Today’s US data includes, PMI Construction Spending, JOLTS Job openings and ISM manufacturing,

Chart of the Day:  Russian oil at sea

Source: CNBC

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.6651 Previous 6.6607

Shanghai Shenzhen CSI 300 fell 0.20% to 4,083.18

Caixin May Manufacturing PMI 48.1 (forecast 47, April 46)

Chart: USDCNY 1 month

Source: Yahoo Finance