Source: Pixabay

July 27, 2021

Chinese stocks plunge for second day

US Durable Goods Orders rise less than forecast

US dollar rises on modest safe-haven bid

USDCAD open 1.2573-77, Overnight range, 1.2540-1.2591  Previous close 1.2546

FX at a Glance

Source: IFXA/RP

FX Recap and outlook

The US dollar caught a bit of a safe-haven bid after Chinese stock markets melted down again, on fears US funds are bailing on the market. China’s Shanghai Shenzhen CSI 300 index dropped 6.8% since Monday, and Hong Kong’s Hang Seng Index fell 4.22%. 

China’s actions prompted the SEC to say that Chinese companies listing on US stock exchanges must disclose the risks from Chinese government interference.

The fall-out from falling Chinese markets rippled across Europe, driving the major equity indexes lower and Wall Street equity futures.  US 10-year Treasury yields slipped to 1.265% from 1.295% on safe-haven demand.  Oddly, gold prices were also lower, but that may be due to caution ahead of the FOMC statement.  A lack of actionable, top-tier economic data may have exacerbated the negative risk sentiment.

However, it is the summer silly season.  One shouldn’t read too much into the overnight market action. Thin markets,  a lack of top-tier economic data and caution ahead of Wednesday’s FOMC statement distort the outlook.

New orders for Durable Goods rose 0.8% m/m in June, well below the forecast of a 2.1% increase.  Even so, orders have risen 13 out of the last 14 months.

EURUSD remains rangebound in a 1.1770-1.1811 band.  Traders hoping for some directional guidance from tomorrow’s FOMC statement may be disappointed, as not much has changed since Powell’s Congressional testimony when he repeated: “substantial further progress” has not been made.

GBPUSD traded in a 1.3768-1.3830 range, which isn’t much different from Monday’s price action. GBPUSD is in a minor uptrend above 1.3760.  Traders are hoping for a somewhat dovish FOMC result to drive prices to towards 1.4000.

USDJPY  is trading at the bottom of its 109.99-110.39 range, undermined by soft US Treasury yields and safe-haven demand for yen.

AUDUSD and NZDUSD traded sideways with a negative bias due to broad US dollar demand and concerns about China’s growth outlook.

USDCAD continues to bounce between 1.2530 and 1.2605, with the downside limited by the uptrend channel from June and rising risk-aversion stemming from the fall-out from China’s actions.  Support from rising oil prices has dissipated as WTI remains trapped in a $70.00/barrel-$75.00/b range.  Canada June inflation is due tomorrow.

Today’s US data includes S&P Case Shiller Home Price Index (forecast 16.4% y/y for May).

USDCAD technical outlook

The intraday USDCAD technicals are unchanged.  Prices are in an uptrend above 1.2510, looking for a break of 1.2610 to extend gains to 1.2660.  For today, USDCAD support is at 1.2530 and 1.2510.  Resistance is at 1.2590 and 1.2630.   Today’s range 1.2540-1.2610

Chart USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank