Photo: IFXA

June 12, 2023

  • Quiet start to a busy week for central bankers.
  • Oil prices slide on global demand concerns.
  • US dollar opens on the defensive.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3327-31, overnight range 1.3317-57, close 1.3341

USDCAD drifted lower overnight due to a mild bout of “risk-on” sentiment, Traders have embraced the Fed rate hike skip view, which has led to hopes that the post-pandemic rate hike cycle is at an end.

USDCAD is weighed down by the lingering benefit of the BoC’s surprise rate hike but the downside is hampered by layers of technical support and falling oil prices.

Oil prices slid falling steadily from Friday’s closing level of $70.33/b to $67.70 just before NY opened then climbed to $68.68/b.  Oil bears have “flipped the bird” to the Saudi oil minister after he  said short sellers would be “ouching” ahead of a surprise announcement of a 1 million barrel/day production cut.  He is the one “ouching.” Goldman Sachs analysts got into the act.  They cut their oil price forecast for the third time this year and now expect Brent at $86.00 by year end.

Canada’s energy industry is under attack again by  Environment Minister Steven Guilbeault. The career rabble-rouser with no discernable skill-set except his belief that his beliefs are the only ones that count has aimed his sights on New Brunswick Irving Oil. The company wants a price increase  Guilbeault wants them out of business.

There are no Canadian economic reports today.

USDCAD Technical Outlook

The intraday USDCAD downtrend channel is intact while prices are between 1.3290 and 1.3390.  A move below 1.3290 targets 1.3220 which has contained downside moves since September 2022.  A move above 1.3390 suggests a retest of 1.3500.

Longer term momentum indicators suggest USDCAD is approaching oversold.

Today’s range 1.3290-1.3390

Chart: USDCAD 4 hour.

Source: Saxo Bank

G-10 FX recap and outlook  

It’s a bull market for stocks. The S&P 500 has risen more than 20% since its October lows, surpassing the arbitrarily selected number that defines a bull market. The rally is fueled by hopes that the US will avoid a recession, as the Fed is thought to be just one rate hike away from reaching its terminal rate. Many analysts have upgraded their targets for the S&P, and the fear-of-missing-out (FOMO) crowd is jumping in.

However, the BS meter is also red-lining. Analysts point out that most of the S&P 500 gains are attributed to just a handful of mega-cap stocks and A1 excitement. To them, this is merely a bear-market rally, as the inverted yield curve warns of an impending recession.

The bull/bear debate will intensify after tomorrow’s US inflation report and Wednesday’s Fed meeting. Traders are gathering at the starting line ahead of this week’s trifecta of central bank meetings (FOMC, ECB, and BoJ), US CPI and Retail Sales reports.

The US dollar is trading within narrow ranges, while Asian equity indexes closed with marginal gains. The Nikkei 225 index rose by 0.52%, while Australia’s ASX 200 was closed. European bourses are higher, led by a 0.75% increase in the German DAX, while the UK FTSE is relatively flat after rate hike comments made by a Bank of England (BoE) official.

S&P 500 futures are up by 0.13%, and WTI oil prices are down by 2.31%. Gold prices are 0.20% higher compared to Friday’s close.

EURUSD is near the upper end of its 1.0737-89 range, supported by hopes that the Fed will skip a rate hike this month, even as the ECB raises rates by 25 bps. News that the long-awaited Ukraine offensive to reclaim its territory held by Russia and Putin’s plans to deploy nuclear weapons in Belarus did not have any impact on risk sentiment.

GBPUSD traded in a 1.2567-1.2598 band, with the currency finding a bit of support from hawkish comments by a Bank of England official. Policymaker Jonathan Haskel said that future rate hikes cannot be ruled out, but his comments will be forgotten if tomorrow’s employment report is weaker than expected.

USDJPY traded defensively in a 139.07-139.64 range. Comments from BoJ Deputy Governor Masazumi Wakatabe predicting an unchanged BoJ policy meeting result had little impact on trading.

AUDUSD was closed for a holiday, but the currency traded in a 0.65733-0.6774 band.

There are no economic reports from Canada or the US today.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.1212, previous 7.1115

Shanghai Shenzhen CSI 300 rose 0.20% to 3844.43.

Chart: USDCNY 6 month

Source: Bloomberg