Source: IFXA Ltd/RP
FX Recap and Outlook: The shopping malls were empty in December. Canada Retail Sales fell 3.4% while Core Retail Sales (exclude sales by gasoline stations and motor vehicle and parts dealers) fell 4.6%. The news appears to have halted today’s USDCAD slide at1.2607, but prices are hovering just above that level.
The G-7 meets today, and it is sure to be a polite, diplomatic affair, compared to previous meetings with Trump in attendance. The media reports that President Biden is announcing the US will rejoin the Iran nuclear deal and the Paris Accord on Climate Change, as well as discussing ongoing issues with China, including Beijing’s lack of transparency around the COVID-19 outbreak.
China continued to be belligerent. Beijing sent fighter jets into Taiwan airspace and continues to threaten a ban of rare-earth mineral exports to the US.
Yesterday’s worse than expected US weekly jobless claims numbers through cold water on fears the Fed would be forced to raise interest rates prematurely. The US dollar started to slide and continued to do so overnight. US 10-year Treasury yields were steady around 1.30%.
Asia equity indexes closed on a mixed note. Chinese indexes were higher, while Japan’s Nikkei and Australia’s ASX200 were a tad lower. European bourses and US equity futures are posting gains.
EURUSD was steady in Asia, then accelerated higher in Europe, rising from 1.2083 to 1.2144, as inflation-fueled interest rate hike fears faded. Markit Manufacturing and Composite PMI data for Germany and the EU was better than expected. The EURUSD technicals are bullish, but prices need to break above 1.2170 or risk more 1.2030-1.2170 consolidation.
GBPUSD pushed above psychological resistance at 1.4000 but topped out at 1.4007. UK economic reports were mixed. Manufacturing and Services PMI beat forecasts while Retail Sales were very weak. Nevertheless, the GBPUSD rally is showing signs of fatigue as daily Bollinger band, and RSI studies are overbought.
USDJPY retreated due to broad US dollar weakness and reduced risks for higher US interest rates in the near future. The Japanese government downgraded its economic outlook forecasting weaker consumer spending, but tempered the assessment by forecasting higher capital spending. USDJPY dropped from 1054.75 to 105.32 in NY
AUDUSD rallied and got an added lift from Retail Sales data, which rose 0.6% in January, a vast improvement over the 4.1% m/m drop seen in December. The AUDUSD technicals are bullish with the break of the April 2020 peak of 0.7830, setting the stage for further gains to 0.7920.
USDCAD dropped in concert with widespread US dollar weakness. Traders ignored the dip in WTI oil prices, which fell from $61.65 yesterday to $58.62/b overnight. Prices have since bounced to $59.25. USDCAD traders will likely ignore today’s Retail Sales data which is expected to have dropped 2.5% in December. The poor results are all COVID-19 related and, therefore, not a surprise. It seems like selling USDCAD at current levels is a bad idea. The domestic economy is suffering from COVID-19 lockdown measures and a lack of vaccines. The economy will recover, but long after recoveries in the US, UK, Australia and elsewhere.
Today’s US data is second-tier, leaving equity price action to drive sentiment.
USDCAD Technicals: The intraday USDCAD technicals are bearish below 1.2720, looking for a break of the recent low at 1.2606 to target 1.2550. It won’t be easy. There is plenty of support between 1.2540 and 1.2590. For today, USDCAD support is at 1.2605 and 1.2580. Resistance is at 1.2670 and 1.2710. Todays Range 1.2590-1.2690
Chart: USDCAD 4 hour
Source: Saxo Bank
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