Source:  Infinity Games

February 24, 2022

  • Russia invades Ukraine
  • WTI blasts to $100.49/barrel
  • US dollar soars on safe-haven demand

FX at a Glance 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2828, overnight range-1.2730-1.2846, close 1.2738

USDCAD soared in the wake of Russia’s invasion of Ukraine but surging oil prices slowed the rally, but has since slipped from the peak.

WTI rose 10.7%, to $100.49 from $90.75 yesterday, with the weekly API data ignored.  US crude inventories rose 5.93 million barrels in the week ending February 18.

The Trudeau government canceled the Emergencies Act, which was imposed on the weekend, saying the reasons for the measures were no longer needed.

USDCAD gains are supported by “knee-jerk” demand for “safe-haven” US dollars, but those gains will start to fade as global investors realize Canada is an ideal safe-haven proxy. Canada is under the protective umbrella of US military which more than compensates for what passes as Armed Forces in Canada.  Canada has plenty of natural resources including oil.  The Canadian economy is far more reliant on the US market (total goods and services with US in 2019 $718 billion) compared to the EU ($75.0 billion). In addition, the BoC will likely match or even out hike the Fed.

Those needing to sell USDCAD should start hedging with a view that significant resistance in the 1.3000 area will cap gains.

Technical view:  The USDCAD technicals are bullish while trading above 1.2670, looking for a break above 1.2850 to extend gains to 1.2930. A move above 1.2930 suggests a test of major resistance in the 1.3000 area.  The resistance stems from the are being a series of tops and bottoms and 1.3020 is the 38.2% Fibonacci retracement level of the pandemic 1.2015-1.4660 range.

For today, USDCAD support is at 1.2810 and 1.2760.  Resistance is at 1.2850 and 1.2920. Today’s Range 1.2790-1.2890

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Russian President Vladimir Putin believes he is a voice of reason, amidst the cacophony of hysteria emanating from Washington, the EU, and UK over his Ukraine plans.  Those plans became better known overnight after Mr Putin took decisive steps to “demilitarize the Ukraine” by militarizing it.  So far, his actions are less harsh than what US President George W Bush used to search for elusive (and still missing) weapons of mass destruction in Iraq in 2003.

The western world’s reaction to Russia’s actions overshadowed today’s US economic data. US Q4 GDP rose 7.0% y/y as expected while weekly jobless claims fell 17,000 to 232,000. Headline PCE Prices were 6.3%, a tad better than the 6.5% last month.  

Asia equity markets tanked with mainland Chinese and Hong Kong’s Hang Seng index leading the parade down.  European bourses are being crushed.  Germany’s Dax has lost 4.65%, the French CAD 4.41% and the UK FTSE 100 is down 2.89%. S&P 500 and DJIA futures have been hammered as well, with both down over 2.10%. Gold soared gaining 2.78% while safe-haven demand for Treasuries drove the 10-year yield down to 1.876%.

EURUSD smashed below support in the 1.1200 area, WITH A DECISIVE BREAK OF 1.1140 setting the stage for deeper losses to 1.0600, the 76.4% Fibonacci retracement level of the 2020-2021 range.  EURUSD was already under pressure due to the ECB’s dovish monetary policy outlook when compared to the Fed, and the Russia/Ukraine issue exacerbates the negative outlook.

Chart: EURUSD daily

Source: Saxo Bank

GBPUSD followed EURUSD lower dropping from 1.3548 to 1.3385. Traders are busy unwinding bullish GBPUSD trades that were placed due to the risk of Bank of England rate hikes.  If NATO gets involved in the Ukraine interest rates will likely be slashed not hiked.  The GBPUSD uptrend from September 2020 remains intact while prices are above 1.3240.

Chart: GBPUSD daily

Source: Saxo Bank

Sooner or later, the Fed interest rate outlook will take precedence over European politics and opportunistic traders will be actively “bottom-fishing.”

Chart of the Day: Gold (XAUUSD) weekly

Source: Saxo Bank

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3280, previous 6.3313

Shanghai Shenzhen CSI 300 fell 2.03% to 4,529.32

Chart: China 1 month

Source: Saxo Bank