- Risk sentiment soars in wake of soft CPI data
- CPI data suggest Fed hike of just 50 bps in September
- US dollar opens mixed, sinks after CPI
FX at a glance:
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.2870-74, overnight range 1.2820-1.2894 close 1.2885
USDCAD spun its wheels in a narrow range awaiting until the US CPI data. The results were lower than expected which sparked a wave of “risk-on” sentiment and drove USDCAD down to 1.2820.
The USDCAD sell-off followed on the heels of a surge in US equity futures and broad US dollar weakness,
WTI oil prices popped from $88.78 to $90.75/b on broad US dollar weakness, However, the ongoing Russian/Ukraine war and Russia’s penchant for weaponizing oil shipments will limit losses.
Today’s USDCAD price action will be dictated by S&P 500 moves.
The Canadian economic calendar is empty
USDCAD technical outlook
The intraday USDCAD technicals turned bearish with the break below 1.2860 which opens the door to further losses to 1.2750. a break above 1.2860 suggests further 1.2800-1.30 consolidation. The long term uptrend from June 2021 is intact above 1.2600.
For today, USDCAD support is at 1.2805 and 1.2750. Resistance is at 1.2870 and 1.2910. Today’s Range 1.2770-1.2860
Chart: USDCAD hourly
Source: Saxo Bank
G-10 FX recap and outlook
The overnight session was not very interesting. Asia equity indexes closed with small losses, except those in China, while European bourses remain largely unchanged. DJIA and S&P equity futures are ticking higher in anticipation of a tame inflation report. (forecast 8.7% y/y vs June 9.1% y/y).
Things changed in Ny following the inflation report.
July CPI rose 8.5%y/y, below the 8.7% y/y forecast and 0.6% lower than June’s 9.1% result. Core CPI was unchanged at 5.9%.
The news led to an explosion of positive risk sentiment. S&P 500 futures jumped 1.65% while DJIA futures climbed 1.22% in the minutes following the data release.
The stock gains may be overdone. For starter, 8.5% and 5.9% core inflation are still substantially above the Fed’s 2.0% target. The post-data bounce in US equity futures recoups the losses following Friday’s payrolls report. Furthermore, markets are thin, and the Fed will see on more NFP and CPI report before the FOMC meeting.
EURUSD traded in a 1.0203-1.0337 band overnight, then soared to 1.0346 after the US data. Part of the move is due to short-covering and prices need to overcome 1.0360 resistance for another leg higher.
GBPUSD drifted in a 1.2067-1.2105 range, which soared to 1.2249 due to short-covering. The gains are not likely to be sustained the UK’s inflation issues and recession risks.
USDJPY traded quietly in a 134.84-135.29 range, then dropped to 132.70 following the CPI print. Prices have since climbed to 133.15 after the 10-year Treasury yield bounced from 2.688% to 2.732%.
AUDUSD consolidating Monday’s gains in a 0.6948-0.6978 range, then soared to 0.7066 with NZDUSD rallying to 0.6398.
FX open, high, low, previous close as of 6:00 am ET
Source: Saxo Bank
Today’s Bank of China Fix: 6.7612, previous 6.7584
Shanghai Shenzhen CSI 300 fell 1.12% to 4,109.74
July CPI 2.7% y/y vs 2.5% in June
July PPI 4.2% y/y vs 6.1% in June
Chart: USDCNY 1 month