April 17, 2023

  • Fed hawks and US data underpin Treasury yields.
  • No new data today, but plenty of US quarterly earnings reports ahead.
  • US rebounds and consolidates gains overnight.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3360-64, overnight range 1.3345-1.3374, close 1.3358

USDCAD rallied reluctantly after markets re-evaluated their outlook for the US economy and interest rate hikes. Traders expect the Fed to hike 25 bps at the May 3 FOMC meeting while remaining convinced that the Bank of Canada is in park. Of course, that could change if tomorrow’s March CPI is hotter than expected (forecast 4.3% y/y and 0.5% m/m).

WTI oil prices traded in a $81.88-$82.68 range overnight with traders looking for a test of $90.00/b on hopes Chinese crude demand increases.

USDCAD downside continues to be vulnerable to the unwinding of short CAD positions on the IMM.

USDCAD Technical Outlook

 The intraday technicals are bearish below 1.3390, looking for another move below 1.3330 to extend losses to 1.3280.  A topside break will lead to a test of the March downtrend line at 1.3440, which is guarded by the 200-day moving average at 1.3402.

The break below the 200 day moving average (1.3400) will revert to resistance and set the stage for further losses to 1.3220.

For today, USDCAD support is at 1.3330 and 1.3280.  Resistance is at 1.3405 and 1.3440.

Today’s range 1.3305-1.34054

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

US data and hawkish Fed-speak breathed new life into US dollar bulls on Friday. The greenback rallied then consolidated the gains in a data-lite overnight session.

The G-& Foreign Ministers are meeting in Japan. They reportedly discussed China and North Korea, promising to stand up against coercion, market manipulation, or attempts to change the status quo in Taiwan.

Chinese officials responded by railing against the US suppression of Chinese companies and refusing to allow Secretary of State Antony Blinken to travel to China.

China launched a weather rocket, North Korea style. The debris landed in Taiwanese airspace. “So sorry-my bad.

Friday’s Michigan Consumer Confidence Survey (63.5 vs 62) was not a big deal except for the inflation component. Year-over- year inflation expectations rose from 3.6% in March to 4.6% in April.

March Retail Sales were weaker than forecast suggesting that the US economy was slowing raising recession fears.

Meanwhile, FOMC voter Christopher Waller opined about the need for higher interest rates saying inflation hasn’t moved meaningfully and persistently toward the 2.0% target.

 US Treasury yields spiked following the comments and the data, and traders pushed out expectations for when the Fed would start cutting rates.

Asian equity indexes closed with minor gains. Japan’s Nikkei 225 index rose 0.07% while Australia’s ASX 200 gained 0.27%. European bourses opened mixed and are flat to slightly higher as of 6:45 am ET. S&P 500 futures are flitting around unchanged.

EURUSD consolidated Friday’s losses in a 1.0960-1.0999 range, after peaking at 1.1075 on Friday.   ECB policymakers are debating between a 25 and 50 bp rate hike in May due to concerns stemming from last months banking sector woes. Bundesbank President Joachim Nagel remains hawkish due to concerns core-inflation is accelerating.

GBPUSD bounced in 1.2376-1.2427 band, weighed down in part by the risk of higher US interest rates and concerns the Bank of England may leave rates unchanged. The intraday GBPUSD technicals are bearish below 1.2440.

USDJPY jumped to 134.21 from 132.18 Friday to 134.21 after the US 10-year Treasury climbed to 3.53% from Friday’s low of 3.38%.

AUDUSD traded defensively in a 0.6692-0.6718 band due to broad US dollar strength and head of the minutes from the April 4, RBA meeting.

The Canadian and US economic calendar is empty.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.8679, Previous: 6.8606

Shanghai Shenzhen CSI 300 rose 1.40% to 4149.38.

PboC Governor Yi Gang said they have basically ended large scale FX intervention saying that “sooner or later” the market defeats the central bank. Obviously, he has never heard of George Soros and the Bank of England or the EURCHF flash-crash of 2015, that occurred after traders forced the central bank to abandon the longstanding EURCHF floor of 1.2000.

Chart: USDCNY 1 month

Source: Bloomberg