Photo: BingAI

July 24, 2023ll

  • Eurozone and UK PMI data disappoints.
  • China Politburo meetings underpin crude.
  • USD opens mixed -Commodity currencies outperform, EUR and GBP lag.

USDCAD Snapshot: overnight range 1.3184-1.3227, close 1.3224

USDCAD consolidated Friday’s gains in Asia, then retreated in Europe as traders shuffled positions ahead of Wednesday’s FOMC meeting.

The Bank of Canada’s 25 bps rate hike on July 12 continues to act as a drag on USDCAD gains, especially since there could be another rate bump in the pipeline. The BoC monetary policy statement hinted at such a move, noting, “While CPI inflation has come down largely as expected so far this year, the downward momentum has come more from lower energy prices, and less from easing underlying inflation. With the large price increases of last year out of the annual data, there will be less near-term downward momentum in CPI inflation.”

Lower energy prices may become a thing of the past. West Texas Intermediate (WTI) rose from $73.90 per barrel last Tuesday to $77.78/b overnight, boosted by optimism about China’s latest measures to boost its economy and fears of tightening supply due to recent production cuts by Saudi Arabia and Russia

USDCAD is likely to be locked in a 1.3100-1.3260 range until the FOMC meeting.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish above 1.3170, looking for a break above 1.3230 to extend gains to 1.3280.  A move below 1.3180 targets 1.3130 then 1.3090.

The uptrend line from April 4, 2022, comes into play in the 1.3080-1.3100 zone.

For today, USDCAD support is at 1.3160-nd 1.3130.  Resistance is at 1.3230 and 1.3360. Today’s range 1.3140-1.3230

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap

It should be an exciting trading week with the Fed, ECB, and Bank of Japan all taking a turn at center stage. In addition, geopolitical tensions remain high. North Korea continues to fire missiles willy-nilly, and Moscow residents are becoming aware of how unhappy Ukrainians are with Putin’s invasion.

The Commodity Futures Trading Commission (CFTC) reported that short US dollar positions increased by 18% as of July 18, evidence that FX traders are buying into the “one and done” Fed interest rate outlook. It also sets the stage for a nasty US dollar rally if the Fed is more hawkish than expected.

Meanwhile, Russia is blaming Ukraine for a drone attack that hit two non-residential buildings in Moscow and said they reserve the right to retaliate. They obviously have forgotten that Russia has been bombing Ukrainian hospitals, daycares, and residential buildings for the past year.

President Xi Jinping and China’s ruling elite are meeting and discussing ways to grow the economy, which has helped bolster commodity prices in anticipation of increased demand.

EURUSD is trading defensively in a 1.1067-1.1125 range. The single currency has been under pressure since Friday, and the losses continued overnight after weaker-than-expected German and Eurozone PMI data increased the risk of a recession.

GBPUSD is just above the bottom of its overnight 1.2809-1.2882 range, with prices continuing to suffer after analysts and traders trimmed expectations for BoE rate increases. The selling pressure was exacerbated when UK Services and Manufacturing PMI data came out lower than expected. Preliminary July Manufacturing PMI was 45 (forecast 46.1) while Services PMI was 51.5 (forecast 53).

USDJPY held on to most of Friday’s gains and traded in a 140.86-141.80 range due to contrasting Fed and BoJ monetary policy outlooks.

AUDUSD continued to trade with a negative bias in a 0.6716-0.6754 range due to the RBA’s dovish bias and expectations for a 25 bps Fed rate hike. Australian PMI data was not a factor.

FX high, low, previous close 

China Snapshot

Bank of China Fix: 7.1451 vs forecast. 7.1795, prev. 7.1456

Shanghai Shenzhen CSI 300 fell 0.25% % to 3812.18

China’s Politburo meeting was the focus in Asia and other markets with traders looking for a fresh economic insight. 

The officials were heavy on rhetoric and light on details but said they will continue to implement prudent monetary policy toexpand domestic demand

Chart: USDCNY 6 month

Source: Bloomberg