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December 22, 2021

  • Global equity indexes trickle higher
  • UK GDP data mixed, GBPUSD rallies
  • US dollar softer as liquidity deteriorates

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2905-09, Overnight Range 1.2905-1.2922, Previous close 1.2913

USDCAD is reluctantly drifting lower with the cautiously bullish mood in markets. Traders looking for more US stimulus are hoping that Bidens Build Back Better plan will be taken off life-support and come back as Build Back a Bit. Noises out of China suggesting support for local developers, and domestic growth also gave sentiment a boost. However, the good news glow was darkened by the escalating European energy crisis, and the ongoing concerns about Russia and the Ukraine.

Canada Retail Sales rose a better than expected 1.6% in October, which also helped to cap USDCAD topside yesterday.

Oil prices consolidated yesterdays gains in a $70.99/b-$71.75/b range supported by the 3.67 million barrel decline in US crude inventories last week, which has put modest downward pressure on USDCAD.

USDCAD price action this week is mostly noise due to the absence of major corporations, funds etc. Longer term,

Technical view:  The longer term USDCAD technicals are bullish while trading above 1.2640. However, USDCAD has repeatedly tried and failed to crack through significant resistance in the 1.2970-1.3030 area which suggests a downside move is overdue.

The intraday technicals are bearish below 1.2930 targeting a drop to 1.2870, and if broken, 1.2830.

For today, USDCAD support is at 1.2870 and 1.2830.  Resistance is at 1.2930 and 1.2960.  Today’s Range 1.2870-1.2930

Chart USDCAD 4 hour

  Source: Saxo Bank

G-10 FX recap and outlook

FX markets are in full “holiday mode” and are drifting aimlessly within recent trading bands.

This morning’s US data did not illicit much of a reaction except for Wall Street equity futures retreating from their pre-open peak.

US Q3 GDP rise 2.3% q/q and 6.0% y/y.  Both measures were a tick higher than expected.  Consumer Confidence, Existing Home Sales, and Personal Consumption-Expenditures are second tier and are released later in the morning.

Markets are trying to look past the dire Omicron headlines, hoping that the latest round of boosters downgrades the outbreak to merely a market irritant and not a catastrophe.

There are other risks, particularly in Europe, where a full-blown energy crisis drives gas prices to record highs. Russian President Putin is reportedly playing “silly-buggers” with gas pipeline flows to force the EU, NATO, and the US to back away from “threatening his borders. The EU is concerned about Russia’s aspirations for Ukraine.

EURUSD popped from 1.1265 to 1.1310 in NY trading, helped by somewhat hawkish comments from ECB board member Isabel Schnabel who suggested that inflation may not fall as far, or as fast as other ECB members believe. EURUSD needs to break above 1.1380 to break its one-month trading band.

GBPUSD rallied from 1.3242-1.3320 and is bumping up against the downtrend line from October 26. UK GDP data was mixed. Q3 growth was 1.1% q/q compared to the forecast of 1.3% q/q while the year over year results were a tad higher, rising 6.8% y/y compared to 6.6% expected. Even better, for some, the ONS revised the 2020 GDP rate to -9.4% from -9.7%. A break above 1.3330 targets 1.3380.

USDJPY rallied to 114.33 from 113.96 primarily due to the higher US 10-year Treasury yield, which rose to 1.479% from 1.45%.

AUDUSD and NZDUSD are trading as session highs due to broad-based, but mild US dollar weakness

Chart of the Day:  GBPUSD

Source:  Yahoo Finance

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3703, Previous 6.3729

Shanghai Shenzhen CSI 300 rose 0.02% to 4,914.45

Chinese State Planning official talks up growth saying China has the ability, to keep growth at a reasonable level

Chart: USDCNY 1 month

Source: Yahoo Finance