Source: Pixabay

December 2, 2022

  • Another upside surprise to NFP (actual 263,000 vs forecast 200,000)
  • Canada adds 10,100 jobs, unemployment rate falls to 5.1%
  • US dollar surges post NFP

FX at a glance: 24 -hour change

US dollar Change after release of NFP data

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3436-40, overnight range 1.3423-1.3520, close 1.3432

USDCAD surged from 1.3425 to 1.3520 after the US nonfarm payrolls report was far stronger than expected.

The Canadian employment results were better than expected and continues to suggest the Canadian economy is more resilient than previously thought. However, the results took a back seat to the US NFP report.

The Bank of Canada monetary policy meeting is Wednesday. Many economists believe policymakers will pause hiking rates after the expected 50 bp bump in December. They believe that the BoC overnight rate will peak at 4.25% and then stay there for 2023.

WTI oil prices are modestly bid ahead of the Opec meeting on Sunday and talk that the G-7 will impose a $60.00/barrel cap on Russian seaborne oil.  The EU needs all 27 countries to agree.  A deal may see Opec cutting production to help boost prices to the $100/barrel area.

USDCAD Technical outlook

The intraday USDCAD technicals are bullish while trading above 1.3370 with a break above 1.3520 targeting 1.3610.  The USDCAD uptrend channel from November 16 is between 1.3390 and 1.3630.

The weekly chart is also bullish. The USDCAD uptrend line from March 2021 is intact while prices are above 1.2830, a level guarded by strong support at 1.3210 stemming from previous tops and bottoms.  

For today, USDCAD support is at 1.3430 and 1.3390.  Resistance is at 1.3520 and 1.3560

Today’s range 1.3430-1.3520

Chart: USDCAD  4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Wow! US equity bulls were not happy with the stronger than expected US nonfarm payrolls report. S&P 500 futures plunged from 4072 to 4003 in the wake of the data release. The 10-year US Treasury yield leapt to 3.638% from 3.50% before retreating to 3.592%.

The US dollar soared led by a 1.25% gain against the Japanese yen.

So, the answer to the question “Did US Jobs Data Change the Interest Rate Narrative” is yes, maybe.

Yesterday, Fed Chair Powell’s November 30 speech raised hopes that the Fed’s terminal rate was lower than previously expected.  Today’s NFP results question that premise.

However, the outlook is still murky because Powell’s favorite inflation gauge ,the Personal Consumption Expenditures price index (PCE) rose 0.2% m/m in October weaker than expected and the ISM Manufacturing PMI index dipped to 49 from 50.2.

Overnight, Asia stock markets closed with losses led by a 1.59% drop in Japan’s Nikkei 225 index.  European bourses fell deeper into the rate after the NFP report.

EURUSD held on to Thursday’s gains and traded cautiously in a 1.0506-1.0544 range. Prices were supported by weaker than expected Eurozone PPI (actual -2.9% vs forecast -2, Sept 1.6). That changed after NFP, and EURUSD plunged to 1.0430.

 ECB President Christine Lagarde comments about central bankers having to “deliver monetary policy that anchors expectations so those expectations remain moored to target” didn’t provide any inspiration.  The EURUSD technicals are bullish above 1.0430 and targeting resistance at 1.0610.

GBPUSD rallied from 1.2227 to 1.2296 on the back of broad US dollar weakness and greatly improved prospects for a Brexit, Northern Ireland deal. Prices retreated, post NFP and dropped to 1.2136 but have since bounced to 1.2188.

 EU President Ursula von der Leyen said the EU would show a constructive approach” to settle the dispute.  GBPUSD technicals are bullish and looking for a test of resistance at 1.2330.

USDJPY extended Thursdays’ losses and dropped to 133.63 from 135.59 overnight and reversed the move after the employment report rising to 135.97 in NY.  The gains were fueled by the jump in US Treasury yields.

AUDUSD rallied from 0.6796 to 0.6835 bolstered by US dollar weakness and news China eased some covid restrictions then dropped to 0.6743 after the US data.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 7.0542, previous 7.1225

Shanghai Shenzhen CSI 300 fell 0.61% to 3870.95

Chart: USDCNY 1 month

Source: Bloomberg