Picture: Pixabay

September 26, 2021

German election ends in three-way tie

Central Bank-speak includes Fed’s Williams and Brainard, ECB Panetta, and BoE Baily

US dollar opens higher compared to Friday’s open. CAD outperforms

24-hour FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2656-59, Overnight Range 1.2612-1.2665, Previous close 1.2651

USDCAD is trading choppily, but with a bearish bias after peaking at 1.2895 last Monday. Prices tested support in the 1.2600-10 area (the longer-term uptrend line from June) but failed it held.  China’s Evergrande Group’s financial woes held global risk sentiment hostage (a popular pastime with Xi Jinping) last Monday, but those fears dissipated. The improvement in global risk sentiment drove the USDCAD lower. WTI oil prices are flirting with $75.00/barrel and Goldman Sachs economists predict prices will rise to $85.00/b before year end, which is helping to cap USDCAD topside. Canada July GDP is released Friday and a soft report (forecast -0.4% m/m) may delay the BoC tapering plans and underpin USDCAD.

Technical view:  The intraday USDCAD technicals are bearish below 1.2700 looking for a move below the June uptrend line at 1.2600 to extend losses to 1.2480.  A break above 1.2700 targets 1.2900.

For today, support is at 1.2610 and 1.2570.  Resistance is 1.2670 and 1.2730. Today’s range 1.2605-1.2670

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

US Durable Goods Orders rose sharply to 1.8% m/m in August, well above the 0.7% expected and easily beating the 0.5% m/m rise in July. However, when transportation is excluded the gain was a mere 0.2%, which explains why the results were ignored by FX markets.

China’s Xi Jinping proved that the only difference between Xi Jinping’s government and Al Qaeda, the Taliban, or ISIS is that the Chinese don’t wear turbans.  China released Michael Kovrig and Michael Spavor on the weekend.  They are the two Canadian’s held hostage by Xi Jinping and his cronies until Canada paid the ransom (releasing Meng Wanzhou). The Canadian dollar did not react to the news.

EURUSD traded quietly in Asia, then dropped from 1.1727 to 1.1686 due to uncertainty following the German election. The Social Democrats eked a tiny victory over the CDU party, which used to be led by Angela Merkel. The SPU is attempting to create a coalition with two other parties to form a government. The uncertainty ahead of a new government leaves EURUSD vulnerable to a break below 1.1670. ECB President Christine Lagarde told the European Parliament that the economic recovery was moving along, but there were still uncertainties. She reiterated that high inflation readings were temporary.

GBPUSD rallied but ran out of gas (literally as well) at 1.13709, with prices underpinned by EURGBP selling.  A fuel shortage due in part to a Brexit-created shortage of truck drivers is threatening to derail the economic recovery and force the Bank of England to delay plans to tighten monetary policy. A break on either side of 1.3650 or 1.3720 is worth 0.0050 points.

USDJPY is at the top of its 110.55-110.98 range with gains fueled by the surge in 10-year Treasury yields to 1.489%.

AUDUSD and NZDUSD continue to trade defensively after peaking last week. The currency pairs are pressured by a mix of broad US dollar strength and lower commodity prices.

NY Fed President John Williams and Governor Lael Brainard, both voting members, are speaking today. Traders will be interested to see if these members reinforce the hawkish FOMC statement outlook.

Chart of the Day-Gold

Chart: Yahoo Finance

FX open, high, low, previous close

Source: Saxo Bank

China Snapshot -Closed

Today’s Bank of China Fix, 6.4695,   Previous 6.4599

Shanghai Shenzhen CSI 300 rose 0.58% to 4877.37

Chart: USDCNY 1 month  

 Source: Yahoo Finance