Source:  Goodreads

January 7, 2022

  • Canada job gains double forecast (actual 54,700 vs forecast 27,500)
  • NFP disappoints (actual 199,000 vs forecast 400,000)
  • US dollar opens with gains, recoups NFP losses

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot: Open 1.2713-17, Overnight Range-1.2681-1.2729, previous close 1.2725

USDCAD dropped from the overnight low of 1.2708 to 1.2681 in the aftermath of a disappointing headline US NFP report, and better than expected Canadian numbers but then quickly reversed the move.

Statistics Canada said employment rose 54,700 in December, driven by full-time job gains. However, the January numbers will likely be weak due to the latest Omicron restrictions in many provinces.

USDCAD does not seem to be suffering from the sharp rise in oil prices this week. WTI jumped 8.0% since Monday but USDCAD gained as well, rising 0.7% as of today’s NY open. Traders are more focused on the US interest rate outlook than crude prices.

It’s not all bad. The Canadian dollar has outperformed against AUD, NZD, and JPY, while losing some ground against GBP, and being nearly unchanged against EUR. Unfortunately, the Canada/US trade exceeds all of the others combined so the US dollar is what counts.

USDCAD direction will be driven by broad US dollar moves, post NFP. Trading may get choppy around the 10:00 am option expiry window as, reportedly, $1.4 billion of 1.2680-1.2700 option strikes mature.

Technical view:  The USDCAD technicals are bullish above 1.2650 with additional support from previous tops and bottoms at 1.2600.  However, there is plenty of resistance beginning at 1.2760, and continuing at 1.2805, 1.2860 and 1.2920.

For today, USDCAD support is at 1.2680 and 1.2630.  Resistance is at 1.2760 and 1.2810.  Today’s Range 1.2660-1.2750

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The US NFP headline number was a disappointing 199,000 compared to the consensus forecast of 400,000. However, the headline masks the strength of the data. November and October results were revised upwards by 141,000 in total. Even better, the unemployment rate fell 0.3% to 3.9%, which for many economists is “full-employment.”

The US dollar dropped on the news, but the move didn’t last. Wall Street Equity futures dropped but are off their lows. The US 10-year Treasury yield tick rose to 1.762% from 1.742% prior to NFP.

This week, the FOMC minutes and yesterday’s comments from St Louis Fed President James Bullard (non-voter) essentially confirmed that the Fed would raise rates in March. Today’s data did nothing to alter the view.

Bitcoin plunged to $41,581.50 from $46,766.25 following the FOMC minutes and is close to retesting that level in NY trading.

EURUSD chopped about in a 1.1291-1.1322 range overnight and revisited both sides after the NFP report. Traders ignored a slew of Euro area economic reports, including soft German November Industrial Production, Economic Sentiment Indicator, and Eurozone Consumer Confidence Index data. Retail Sales rose 1.0%m/m.

Eurozone inflation hit 5.0% y/y in December, mainly due to soaring energy costs.

GBPUSD traded in a 1.3530-1.3556 range overnight and then hit 1.3565 after the NFP data. Traders do not believe the employment report will alter the Fed interest rate outlook and GBPUSD is underpinned by expectations for higher UK rates. UK Construction PMI, at 54.3, was not a factor.

USDJPY continues to be supported by rising US Treasury yields but comments from Japan’s Finance Minister may act as a drag.  He said that FX stability is important, and they are closely monitoring rates.

AUDUSD and NZDUSD bounced modestly but are still trading defensively.

Chart of the Day:  Bitcoin (BTCUSD)

Source:  Coin Desk

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3742, previous 6.3728

Shanghai Shenzhen CSI 300 rose 0.9% to 4,822.37

Foreign Reserves rise to $3.25 trillion in December ($3.22 trillion in November)

Chinese newspaper reports PBoC may ease policy in Q1

Chart:  USDCNY 1 month

Source: Yahoo Finance