July 6, 2022

  • Traders assessing fallout from Tuesday’s debacle
  • FOMC minutes to be parsed for recession talk
  • US dollar consolidates gains

FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3037-41, overnight range 1.3014-1.3063, close 1.3030

USDCAD had a lot in common with “jumpin jack flash” yesterday. Both were caught in cross-fire hurricanes.  Someone got the idea that a recession was not just a risk, but a sure thing, and it shoved inflation fears on to the back burner.

USDCAD soared, rising from 1.2846 in Asia to 1.3084 at mid-day in NY. The rally got and added boost as WTI oil was free-falling.  WTI dropped 12.2% peak to trough yesterday, falling from $111.65 to $97.60 as oil bulls bailed out of positions.

The oil plunge occurred in the face of western sanctions on Russian oil, supply disruptions in Libya due to political unrest, and increasing demand from China as Covid restrictions ease. In addition, previously announced Opec production increases are only on paper, as the many cartel members have been unable fill their quota.

The USDCAD gains are a bit of a head-scratcher.  The Bank of Canada is widely expected to deliver a 0.75% rate hike next week and some economists predict 3.0% by year end.  Even at $90.0/b, WTI undermines USDCAD.

The Canadian economic calendar is empty.

USDCAD technical outlook

The intraday USDCAD technicals are bullish following the break above the hourly downtrend line at 1.2950. The subsequent rally halted at 1.3080 and retreated. A drop below 1.2940 suggests further losses to 1.2820.  For today, USDCAD support is at 1.3005and 1.2950. Resistance is at 1.3080 and 1.3150. Today’s Range 1.2980-1.3080

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Traders are assessing the aftermath of yesterday’s market melt-down. There wasn’t a specific catalyst for the sudden stampede into safe-haven assets, which implies markets will attempt to recoup some of yesterday’s losses today.

Bond traders do not respect the Fed’s ability to manage monetary policy and avoid a recession. The US 10-year Treasury yield is trading at 2.82% compared to yesterday’s 2.98% peak.

Gold took a pounding.

XAUUSD plunged to $1760.40 in NY from $1812.00 yesterday under the weight of recession fears and sharply higher interest rates

The FOMC minutes are released this afternoon, and traders will be scouring them line by line for insight into the committee’s view on inflation. and inflation risks. Do they really believe they can engineer a soft-landing, or are they so fixated on inflation that the economy be damned?

Asia equity indexes followed Wall Street’s lead and closed with hefty losses. European bourses opened with a modestly negative bias but turned that frown upside down. The UK FTSE100 is up 1.70%, with the German Dax trailing at 1.60%. S&P 500 futures are off their worst levels but remain modestly lower. WTI oil rebounded from yesterday’s close.

EURUSD dropped from 1.0450 Tuesday to close at 1.0265 the continued to fall overnight, touching 1.0167 in NY trading today. The single currency is suffering from a litany of woes, including concerns that the ECB will be forced to keep interest rates at ultra-low levels to avoid exacerbating the impending recession. The EURUSD technicals are bearish with the break below 1.0370, targeting 1.000.

GBPUSD is trading in a 1.1877.1988 range. It is plumbing the depths of the Brexit vote low with UK politicians doing their best to drive the currency even lower. Yesterday, the Chancellor of the Exchequer and the Health minister resigned to protest Boris Johnson’s leadership or lack thereof. Even worse, Bank of England officials continue to deliver dire warnings about the UK economy. A decisive break below 1.1930 leaves clear sailing until 1.1500.

USDJPY traded in a 135.03-135.87 range, weighed down by soft Treasury yields and safe-haven demand for yen.

AUDUSD recovered some of yesterday’s losses, trading in a 0.6779-0.6820 range. Yesterday’s 0.50% rate hike has already been forgotten.

Today’s US data includes ISM Services PMI for June and the JOLTS job openings survey.

Chart of the Day:  WTI oil hourly-two weeks

Source: Saxo Bank

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.7246, previous 6.6986

Shanghai Shenzhen CSI 300 fell 1.46% to 4,423.97

Covid issues flare up in Xi’an City which is in a 7_day clampdown, described as temporary control measures. Macau officials locked down the Grand Lisboa hotel and Casino due to infections.

Chart: USDCNY 1 month

Source: Yahoo Finance