Equities bounce and 10-year Treasury yield retreats
Upside surprise to Eurozone Economic Sentiment and Industrial Confidence
US dollar consolidates gains, opens mixed compared to Tuesday
24-hour FX at a Glance:
USDCAD Snapshot Open 1.2679-83, Overnight Range 1.2671-1.2699, Previous close 1.2685
USDCAD tried and failed to sustain a break below 1.2600 yesterday in part because WTI oil prices retreated from their overnight peak of $76.62/barrel. WTI continued to slide overnight encouraged by the 4.12 million barrel increase in US crude inventories reported by the American Petroleum Institute. USDCAD rallied alongside the plunge in the S&P 500 index yesterday and firmed with the overnight equity rebound.
USDCAD trading may be choppy today, around the 10:00 am option expiry window, as there is a chunky 1.2620 strike expiring. In addition, pre-dealing ahead of Thursday’s month-end portfolio rebalancing may underpin prices.
USDCAD gains may be limited due to steady to firm oil prices, and expectations that the Bank of Canada raises interest rates ahead of the Fed.
Canada Raw Materials and Industrial Product price data were mixed. The Raw Material Price Index fell 2.4% m/m in August (previous -2.2% m/m) while the Industrial Product Price Index fell 0.3% m/m (previous -0.4%).
Canadian banks and government offices are closed Thursday.
Technical view: USDCAD has bounced between 1.2600-1.2700 for nearly a week guided by the often-tested, never broken, uptrend line from June. A decisive break above 1.2710 targets 1.2750, then 1.2840. A move below 1.2580 (38.2% Fibonacci retracement level of June-August range) suggests further losses to 1.2360 (61.8% Fibonacci level)
For today, support is at 1.2640 and 1.2610. Resistance is 1.2710 and 1.2750. Today’s range 1.2630-1.2730.
Chart USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
European equity markets are trading higher but off their best levels. The same is true for Wall Street futures. S&P 500 index futures have drifted from their overnight peak but still point to a positive open on Wall Street. European and US equity price action is being driven by bonds. The 10-year Treasury yield dropped from its Asia peak of 1.558% to 1.50% but has since bounced to 1.516%.
Gold bulls are being crushed by the surge in US interest rates following the FOMC’s hawkish shift. XAUUSD tested support at $1730.00 yesterday. The subsequent bounce was of the dead-cat variety and while prices are below $1746.00, further losses are likely.
Aftershocks from developments in China have soured global risk sentiment. China is in the throes of an energy crisis. Reuters reports that a shortage of coal supplies, tough new emission standards and increased demand from manufactures and other industries have lifted coal prices to record levels.
Then there is Evergrande’s financial problems. The companies massive debt has raised concerns about the health of the entire Chinese economy, which has bolstered negative risk sentiment.
The combination of global growth concerns, and higher US interest rates has given the US dollar a boost against the G-10 major currencies.
EURUSD extended overnight losses in early NY trading and fell from an Asia peak of 1.1689 to 1.1641. The single currency is weighed down by divergent ECB and Fed interest rate outlooks which was highlighted today by ECB Governing Council member Gabriel Makhlouf. He said that the ECB should not be looking to raise rates or react to higher inflation. Eurozone Economic Sentiment data improved to 117.8 from 117.6. The EURUSD technicals are bearish below 1.1690, looking for a break of 1.1640 to extend losses to 1.1590.
GBPUSD dropped overnight and accelerated those losses in NY, falling from an overnight peak of 1.3554 to 1.3447. Ongoing fears of an economic slowdown and rising inflation due to the UK gas and other supply shortages, combined with negative global risk sentiment is weighing on prices. GBPUSD is trading very close to the 2021 low with a break below 1.3440 targeting 1.3280.
USDJPY drifted down from 111.67 t0 111.22 in tandem with the retreat in the US 10 year Treasury yield. Then bounced to 111.58 in NY when Treasury yields firmed.
AUDUSD and NZDUSD are lower due to global growth concerns and broad US dollar strength.
There are not any notable US economic reports today
Chart of the Day- GBPUSD
FX open, high, low, previous close
Source: Saxo Bank
Today’s Bank of China Fix, 6.4662, Previous 6.4608
Shanghai Shenzhen CSI 300 fell 1.02% to 4833.93
Chart: USDCNY 1 month
Source: Yahoo Finance