January 25, 2024
- ECB statement is dovish.
- Robust US data keeps goldilocks scenario alive.
- US dollar steady after yesterday’s gains.
FX at a glance
USDCAD Snapshot: open 1.3503-07, overnight range 1.3506-1.3535, close 1.3524.
If patience is a virtue, the Bank of Canada is a saint. The BoC left interest rates and monetary policy unchanged yesterday. They broadly hinted that rate hikes were done, but they also indicated that they were in no hurry to reduce rates either. They don’t see much progress in lowering inflation and do not expect much economic growth.
The BoC meeting was quickly forgotten due to robust US S&P Global PMI data, which reinforced the resilience of the US economy and Fed officials’ views, suggesting it was too early to cut rates. That sentiment was confirmed this morning with Q4 GDP rising 3.4% y/y, and weekly jobless claims rose by 21,000 to a still impressive 214,000 level. That data supports the Fed officials that say it is too early to cut interest rates.
Oil bulls are finally seeing some relief from slumping prices. WTI rallied from $73.94 yesterday to $76.37 in early New York trading today. Bullish traders were emboldened by yesterday’s Energy Information Administration data, showing US crude inventories fell by 9.23 million barrels, compared to expectations for a 2.1 million barrels drop. A Ukrainian drone strike on a Russian oil terminal, escalating geopolitical tensions in the Middle East, and the latest round of China stimulus fueled the rally. The intraday technicals are bullish above $74.60, with a break above $76.50 potentially extending gains to $79.00.
The USDCAD technicals flipped to bullish yesterday with the breach of 1.3460 which is also the 100 day moving average. The uptrend is intact above 1.3460 with the 200 day moving average at 1.3560, the target. A move below 1.3460 suggests a return to the well defined 1.3250-1.3550 trading range.
For today, USDCAD support is at 1.3470 and 1.3430. Resistance is at 1.3560 and 1.3610. Today’s range is 1.3510-1.3590
Chart: USDCAD daily
Source: Daily FX
G-10 FX recap
The Bulls and the kids are alright. Who knew? Wall Street closed near the top of its recent ranges, and Asian equity indexes rallied hard. China’s latest RRR cut, alongside state-owned entities ordered to buy stocks, boosted the Hong Kong Hang Seng and Shanghai Shenzhen CSI 300 indexes for the second day in a row. The Hang Seng gained 1.90%, and the CSI 300 climbed 2.01%. Australia’s ASX 200 rose 0.40%, but Japan’s Nikkei 225 index was flat. European bourses remain underwater ahead of ECB President Christine Lagarde’s press conference. S&P 500 futures are flat which is still a fairly stellar performance, considering that the US 10-year Treasury yield is hovering around 4.14%.
EURUSD is steady in a 1.0870-1.0901 range, after the ECB monetary policy statement did not offer any surprises. The statement is somewhat dovish saying, “The Governing Council today decided to keep the three key ECB interest rates unchanged. The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook. Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.” Ms Lagarde is likely to repeat that it is far too soon to think about rate cuts although the economic outlook suggests otherwise. The Ifo Business Climate survey fell to 85.2 points from 86.3 in December.
GBPUSD is stagnate in a 1.2703-1.2743 band. Traders are awaiting clear direction from the US following today’s data dump which supports further US dollar gains.
USDJPY is steady in a 147.41-147.90 range. Selling pressure from concerns that the BoJ may tighten policy at its next meeting are offset by higher US Treasury yields.
AUDUSD is at the top of its 0.6566-0.6605 range due to optimism following China’s stimulus actions.
FX high, low, open (as of 6:00 am ET)
PBoC fix: today 7.1044, expected 7.1620, previous 7.1053.
Shanghai Shenzhen CSI 300 rose 2.01% to 3342.92.
Chart: USDCNY and USDCNH daily