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June 15, 2022

  • US Retail Sales decline 0.3% m/m  in May
  • ECB Spooked by bond market turbulence
  • US dollar retreats modestly, from yesterday’s close

FX change at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2934-38, overnight range 1.2918-1.2971, close 1.2956,

USDCAD consolidated yesterday’s gains overnight.  USDCAD direction continues to be determined by broad US dollar sentiment, which is driven by the outlook for US interest rates.

Nevertheless, further USDCAD gains may face hurdles.  The rise in Canadian 10-year bond yields has outpaced the US 10-yearTreasury yield. Canada 10-year yields finished at 3.53% yesterday while the US 10-year yield closed at 3.37%.

WTI oil prices remain elevated, even after sliding from $119.59/b to $117.02, before rebounding to 118.19 in NY today. Predictions for increased Chinese demand in the face of Russian oil sanctions suggests WTI has limited downside, adding a layer of resistance to USDCAD gains.

Canada housing starts were to 287,257 units in May compared to 265,700 in April.  The six month moving average slipped to 254,727 from, 257,833, which CHC says “remains historically high.”

USDCAD technical outlook

The intraday USDCAD technicals are modestly bearish with the move below 1.2950 suggesting further losses to 1.2860 then 1.2790.  A break above 1.2980 targets 1.3050. Longer term, USDCAD remains stuck in a 1.2500-1.3050 range.

For today, USDCAD support is at 1.2890 and 1.2860. Resistance is at 1.2960 and 1.2990.  Today’s Range 1.2890-1.2990

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Fed Chair Jerome Powell and ECB President Christine Lagarde are under the gun.

Financial markets treated central bank officials like rock stars.  Billions of dollars traded hands with almost every pronouncement by a policymaker, no matter how banal or trite.  Jerome Powel and Christine Lagarde presided over monetary policy press conferences like Judge Judy, dismissive of any comments that questioned their pronouncements. 

Now they find that their adoring audiences are becoming far more critical.

The ECB is in full panic mode and is holding an emergency meeting as this is being written.  Bond yields in EU countries soared, and when the Italian bond yield climbed to 4.16% yesterday, a 1.07% increase in a month, policymakers got spooked.  The ECB detailed their step-by-step plan to normalize policy last Thursday.  The Bond trader verdict appears to be “too little-too late.”

The FOMC does not need to call an emergency meeting.  They meet today.  Mr Powell will bow to market demands and raise the overnight rate by 0.75% to 1.5-1.75%, and the dot-plot forecast is expected to confirm a similar hike at the July 27 meeting.  The CME Fedwatch tool odds for the July move are 95%.

The Bank of Japan is risking a Bank of England-George Soros style meltdown if it continues to stick to its yield curve control policy in the face of rising global bond yields.

US Retail Sales fell 0.3% in May, which was worse than expected.  However, the results were ignored due to the looming Fed meeting.

Asian equity indexes closed in the red. Japan’s Nikkei 225 lost 1.14% while Australia’s ASX 200 fell 1.27%.  The Chinese markets were an anomaly with the Hang Seng and Shanghai CSI 300 posting gains due to domestic influences.  The news of the ECB emergency meeting has lifted European bourses.

Profit-taking ahead of the FOMC meeting is underpinning DJIA and S&P 500 futures.

EURUSD rallied from 1.0415 to 1.0507 with prices underpinned due to the ECB meeting and on profit-taking ahead of the FOMC meeting. Germany’s IFO institute raised its 2022 inflation forecast while downgrading GDP growth.  The news was ignored.  EURUSD technicals are modestly bullish with a break above 1.0540 extending gains to 1.0620.

GBPUSD rallied in a 1.1991-1.2102 range, following on the heels of the EURUSD rally.  The gains may be short-lived due to rising EU/UK tensions over Northern Ireland Protocol.

The Bank of England meeting is tomorrow but it is a statement-only affair.  GBPUSD needs to break above 1.21120 or risk revisiting the low.

USDJPY traded in a 134.31-135.58 range and is sitting just above its on-week uptrend line.  Traders are awaiting the updated Summary of Projections from today’s FOMC meeting.

AUDUSD firmed in a 0.6874-0.6943 range due to broad US dollar weakness ahead of the FOMC meeting.  Goldman Sachs analysts now expect the RBA to hike rates by 0.50% at the August and September meetings.

Today’s US data which includes May Retail Sales, and NAHB Housing Market Index should be non-events due to the FOMC meeting.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.7518, Previous 6.7482

Shanghai Shenzhen CSI 300 rose 1.32% to 4,278.22, Previous close 4,222.31

May Retail Sales -6.7% y/y (forecast -7.1%, April -11.1%

May Industrial Production 0.7% y/y (forecast -0.7%, April -.2.9% y/)

Chart: USDCNY 1 month

Source: Yahoo Finance