Source: IFXA Ltd/RP
South of the border, US Retail Sales surged 5.3% m/m in January, handily beating December’s -0.7% result. The jump was due to stimulus payments from the previously announced $900 million COVID-19 Relief package.
Treasury traders are worried about inflation forcing interest rates higher, and Central Bankers say they shouldn’t be concerned. The Central bankers are being ignored. Yesterday, US 10-year Treasury yields soared, rising from 1.22% to 1.33% in Asia overnight. They are trading at 1.31% in NY.
Fed officials repeatedly say that they will look past rising inflation rates, partially because they believe the US employment situation is far weaker than what the data indicates.
Those hoping for clarity on this issue from the release of the FOMC minutes today will be disappointed. The meeting was on January 27, and 10-year yields were not an issue then.
Asia equity markets closed mixed, while European bourses and Wall Street futures are mixed to flat. Gold prices climbed off of yesterday’s low while oil prices firmed due to the US weather system’s impact.
EURUSD topped out at 1.2167 yesterday and traded lower as US Treasury yields climbed, dropping to 1.2060 overnight. Prices broke through support at 1.2050 after the US Retail Sales data and are poised to test support at 1.2000. Eurozone data was not a factor.
GBPUSD has retraced over 50% of Friday’s gains on the back of surging Treasury yields, and broad US dollar strength. UK inflation rose 0.7% in January, as expected. Analysts said that inflation increases in the coming months is due to a change in the calculation. Prices will not be compared to pre-pandemic levels. Producer Prices and Retail prices were higher than expected. GBPUSD losses have been limited by EURGBP selling. The GBPUSD uptrend since October is well-entrenched with traders looking for further gains to 1.4000.
USDJPY soared and sank in tandem with US Treasury yields. The 200 day moving average at 105.53 was resistance, and now it is support. The increase in US Treasury yields after the Retail Sales report drove prices to the overnight peak of 106.21.
AUDUSD and NZDUSD dropped on the back of broad US dollar demand.
USDCAD tested support at 1.2610 Tuesday, then bounced to 1.2717 overnight. The moves did not occurr because of domestic influences. Instead, rising US Treasury yields sparked a profit-taking US dollar rally vs the majors due to inflation concerns. A parade of Fed speakers including Fed Chair Powell, St Louis Fed President James Bullard, and Fed Governor Michelle Bowman, pushed back against tapering suggestions, and reminded markets that an increase in inflation was temporary. USDCAD continues to be undermined by rising commodity prices including WTI oil, and by expectations for a vaccine-fueled US and Canadian economic recovery.
USDCAD Technicals: The intraday technicals continue to flip-flop between bullish and bearish. This morning they are bullish, after rising from 1.2612 yesterday, breaking above 1.2660, and climbing to 1.2717 overnight. Intraday support is at 1.2690. The February downtrend is intact below 1.2730, which guards the March 2020 downtrend line in the 1.2790-1.2810 area. For today, USDCAD support is at 1.2690 and 1.2640. Resistance is at 1.2720 and 1.2770. Todays Range 1.2660-1.2730.
Chart: USDCAD 4 hour
Source: Saxo Bank
FX open (6:00 am EDT) High, Low, and previous close
Source: Saxo Bank