Photo: Mark O’Neill

July 23, 2021

Canada Retail Sales fall 2.1% m/m, beat forecast

Dovish ECB outlook weighs on EURUSD

US dollar opens higher except against NZD

USDCAD open 1.2565-69, Overnight range, 1.2557-1.2580,  Previous close 1.2561

Weekly FX at a Glance

Source: IFXA/RP

FX Recap and outlook

The US dollar opened in NY on a subdued note.  It was a far cry from this week’s FX volatility that saw USDCAD 1.5% lower from Monday’s open and USDJPY 0.59% higher.  The rest of the major G-10 currencies are close to where they started the week.

Asia equity indexes closed higher except for the Nikkei 225, which was closed, and the major Chinese indexes, which lost ground due to ongoing US/China tensions and tightening of mortgage  lending rules to property developers.

The major European bourses are about 0.80% higher, while S&P 500 futures project a positive open on Wall Street.

Oil prices are flat, and gold is modestly lower.  US 10-year Treasury yields are steady at 1.294%.

 EURUSD bobbed and weaved in a 1.1759-1.1827 range, following yesterday’s ECB policy statement and press conference.  When the dust cleared, the single currency was adrift in a 1.1760-85 range, which continued overnight.  Eurozone and German Composite, Services, and Manufacturing PMI reports were better than expected thanks to the easing of COVID-19 restrictions and suggest a rosy Q3.  However, the impact of the data on EURUSD was negligible in the wake of the dovish ECB meeting.

The ECB emphasised that interest rates would remain unchanged until it “sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon.” They also said they would accept a “transitory period in which inflation is moderately above target.”

Bundesbank President Jens Weidmann and Belgium Central Bank Governor Pierre Wunsch opposed the ECB’s change in guidance.

The intraday EURUSD technicals are bearish below 1.1850.

GBPUSD continued to consolidate Wednesday’s gains, trading in a 1.3727-1.3779 band.  Traders mostly dismissed weaker than expected June Retail Sales and July flash PMI data, as it was coronavirus related.  GBPUSD technicals are bullish above 1.3670 looking for a move to.1.3900 on a break of 1.3800.

USDJPY extended this week’s gains, rising from 110.10 to 110.49.  the gains were underpinned by steady to higher US Treasury yields and the unwinding of safe-haven trades.  Japan was closed for Sports Day and the opening of the Olympics.

AUDUSD dropped to 0.7361 on weaker than expected PMI data then recovered all the losses on broad US dollar selling due to improved risk sentiment.  AUDUSD remains defensive due to new COVID-19 lockdown measures and news that New Zealand suspended the travel bubble for at least eight weeks.  NZDUSD mirrored AUDUSD moves.

USDCAD traded in a narrow 1.2557-1.2580 range with prices weighed down by steady to firm oil prices, and the rebound in the S&P 500.  Canada Retail Sales fell 2.1% m/m in May which beat the forecast of a 3.1% decline.  Traders ignored the news, as the data is stale and impacted by coronavirus measures.   USDCAD will be determined by  broad risk sentiment, and not domestic news.

USDCAD technical outlook

The intraday USDCAD technicals are bearish below 1.2590 (hourly chart), looking for a move below 1.2530 to test June uptrend line support at 1.2450.  A move above 1.2590 targets 1.2670.   For today, USDCAD support is at 1.2530 and 1.2490.  Resistance is at 1.2590 and 1.2670.   Today’s range 1.2520-1.2620.

Chart USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank