January 25, 2023
- BoC policy statement, MPR ahead
- SP500 futures wobbly after Microsoft earnings report
- US dollar trades sideways, AUD soars on CPI
FX at a glance
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.3378-82, overnight range 1.3346-1.3383, close 1.3368
USDCAD is the currency that traders forgot-at least overnight, as evidenced by the range which was almost identical to that of Tuesday.
The BoC monetary policy statement and quarterly Monetary Policy Report is due today. The market expects the BoC to hike rates by 25 bps and announce it is pausing further hikes. However, there are some that believe the BoC will leave rates unchanged today. That difference of opinion should lead to some USDCAD volatility.
Arguably, an unchanged result in the face of an expected 25 bp rate bump by the Fed on Feb 1, will see USDCAD test resistance in the 1.3550-1.3600 area.
If rate rise by 25 bps, the focus will shift to the updated forecasts in the MPR.
USDCAD Technical Outlook
The USDCAD downtrend on the daily chart is intact while prices are below 1.3480, while support is at 1.3330, which guards 1.3230, the support line from September 2022. A break below the latter1.3230 puts 1.3000 in play. are bearish below 1.3440, looking for a move below 1.3340 to extend losses to 1.3310. A break above 1.3480 would target 1.3600.
For today, USDCAD support is at 1.3330 and 1.3310. Resistance is at 1.3390 and 1.3440.
Today’s range 1.3330-1.3430
Chart: USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
Australian and New Zealand inflations reports were the highlight in another quiet Asian session as Lunar New Year celebrations continue. Things were a little better in Europe thanks to German Ifo and UK PPI reports.
Risk sentiment is mildly positive even as the Doomsday Clock ticks closer to midnight. Germany and the US agreed to supply Ukraine with high tech MI Abrams and Leopold 2 tanks.
Japan’s Nikkei 225 index advanced 0.35% while the Australian ASX 200 dropped 0.29%. European bourses are in the red with the German Dax index down 0.44% and the French CAC 40 index down 0.41%. S&P 500 are down 1.17% as of 5:30 am PT%. The US 10-year Treasury yield is 3.434%, little changed from Tuesday’s close.
Gold (XAUUSD) traded in a $3976.03-$4023.39 range. The overnight losses were mainly due to profit taking in a quiet market. Gold has climbed steadily since the beginning of November, rising from $1620.25 to $1942.37 yesterday, a level last seen in April 2022. Gold prices are supported by the ongoing fears of a recession, speculation that the Fed is closing in on its peak rate is underpinning prices and safe-haven demand from fears of an escalation in the Russia-Ukraine war.
EURUSD rallied in Asia, reaching 1.091, then retreated steadily in Europe and touching 1.0858 in early NY trading. Traders have shrugged off the optimistic German Ifo report. The report noted, “The ifo Business Climate Index rose to 90.2 points in January, up from 88.6 points in December. This is due to considerably less pessimistic expectations. Companies were, however, somewhat less satisfied with their current situation. The German economy is starting the new year with more confidence.”
EURUSD continues to be supported by hawkish expectations for the February ECB meeting, and bullish technicals while prices are above 1.0790.
GBPUSD bounced in a 1.2285-1.2338 range. Prices retreated from the peak after UK PPI data and a negative outlook by economists from Commerzbank. The economists warned that the weak UK economic outlook and high inflation is making the Bank of England’s task very difficult and no matter what they do, GBPUSD will trade lower. The intraday technicals are bearish with a move below 1.2270 targeting 1.2070.
USDJPY dropped from 130.57 to 129.67 in early NY. BoJ comments stating that monetary policy will remain “easy” contrast with speculation of tightening, once BoJ Governor Kuroda steps down in April.
AUDUSD surged from 0.7034 to 0.7124 following the hotter-than-expected inflation report. In December, CPI rose 8.4% y/y (forecast 7.7% y/y and November 7.3% y/y).Analysts suggest the results will force the RBA to continue raising rates until the peak interest rate reaches 4.1%.
NZDUSD lagged the AUDUSUD moves and traded in a 0.6468-0.6503 range. New Zealand inflation was 7.2% y/y, unchanged from November.
The US data calendar is empty.
Chart of the Day: Gold (XAUUSD) 1 year
Source: Saxo Bank
FX open, high, low, previous close as of 6:00 am ET
Source: Saxo Bank
Closed Lunar New Year Bank of China Fix: Jan. 20,2023, 6.7702, previous 6.7674.
Shanghai Shenzhen CSI 300 closed 4181.53. 20Jan23
Chart: USDCNH (off-shore) one month