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August 3, 2022

  • Risk fears from Pelosi visit to Taiwan fade
  • Opec meeting today
  • US dollar opens mixed, AUD underperforms

July FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2853-57, overnight range 1.2762-1.2890, close 1.2880

USDCAD traders largely ignored the market furor over Pelosi’s Taiwan visit and the US Treasury yield rollercoaster, content to trade in a 1.2833-1.2890 range since yesterday.

WTI oil prices continue to consolidate last week’s losses in a $92.55-$96.30/barrel range.  WTI is on the defensive to fears of weaker demand from China, speculation of lower global growth, and speculation that Opec will announce another increase in production at today’s meeting.  Whatever happens, it will have limited impact on both oil pricing and USDCAD.

USDCAD will continue to track broad US dollar direction which will likely be choppy ahead of Friday’s US employment report.   Canadian employment data is also released Friday, but it will not be much of a factor for USDCAD trading.

There are no domestic economic reports today.

USDCAD technical outlook

The USDCAD uptrend that started on July 4, ended July 18 with the move below 1.2990.  The subsequent downtrend is intact while prices are below 1.2890, which survived a test, yesterday. A topside break retargets 1.2990.  Longer term, USDCAD is consolidating in a 1.2750-1.3050 range.

For today, USDCAD support is at 1.2830 and 1.2790.  Resistance is at 1.2890 and 1.2910.  Today’s Range 1.2830-1.2910

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Nancy Pelosi spent a day and a night in Taiwan, and China’s Xi Jinping spent a day and a night pounding his fists and kicking his heels. Ms Pelosi spoke of “American’s determination to preserve democracy,” which is democrat-speak for preserving a source for semiconductor chips.

Xi Jinping sent military planes into Taiwan airspace, began live-fire naval exercises in the sea around Taiwan, and launched a cyber attack on the Taiwanese Presidential office. North Korea’s resident nutbar noted and said “Hey Jinping, take a chill pill, dude.

Traders started to walk-back their assumptions that the Fed would quickly ease off the rate-hike accelerator as soon as January 2023 after a flurry of Fed officials warned that the Fed needs to do a lot more work to tame inflation.

Cleveland Fed President Loretta Mester (voter) said, “We have more work to do because we have not seen that turn in inflation. It’s got to be a sustained several months of evidence that inflation has first peaked – we haven’t even seen that yet – and that it’s moving down.”

Chicago Fed President Charles Evans said a 50bp hike in September was reasonable, but 75 bps is a real possibility.

Bond traders took note and drove the US 10-year yield from 2.577% to 2.763% today.

Asia equity indexes closed mixed. Japan’s Nikkei 225 gained 0.50% while Australia’s ASX 200 lost 0.32%. European bourses opened soft but managed to squeeze out small gains led by a 0.21% gain in the German Dax. S&P 500 futures are pointing to a mildly positive open on Wall Street.

EURUSD inched higher overnight, rising from 1.0151 in Asia to 1.0200 in early NY trading after fears of an unhinged China reaction to Pelosi’s Taiwan visit faded. Modestly better than expected German trade, Swiss inflation, and Eurozone Services PMI reports underpinned prices, although the ongoing Ukraine war and supply disruptions limit gains. EURUSD remains bearish below 1.0330.

GBPUSD traded in a 1.2136-1.2207 range. Prices rebounded from the low until the rally stalled when the National Institute of Economics and Social Research (NIESR) warned that UK inflation would soar to “astronomical levels” over the next year, with inflation hitting 11% before year-end. In addition, UK Services PMI fell to 52.6 from 53.3 in June, a 17-month low.

GBPUSD is in a modest uptrend above 1.2120.

USDJPY bottomed out at 130.47 yesterday, then stormed higher, reaching 133.90 in Asia overnight, fueled by sharply rising US Treasury yields and an easing of Japanese yen safe-haven demand.

AUDUSD traded in a 0.6888-0.6940 range with prices tracking global risk sentiment. NZDUSD mirrored AUDUSD moves in a 0.6215-0.6270 band.

US ISM Services PMI (forecast 53.5, previous 55.3) is ahead.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.781,  previous 6.7462

Shanghai Shenzhen CSI 300 fell 0.97% to 4,066.98

Caixin Services July PMI 55.5, forecast 48, June 54.5

Chart: USDCNY  1 month

Source: Bloomberg