Source: Wikimedia

March 15, 2022

  • FX focus shifts to the Fed
  • US warns China not to help Russia
  • Commodity currencies sink as commodity prices slump

FX at a Glance 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2857-61, overnight range-1.2816-1.2869, close 1.2825

USDCAD didn’t see a whole lot of weakness when WTI oil prices were flirting with $130.00, but the nearly 12% drop in just 48 hours left a mark.

Oil prices are nearly down to pre-Ukraine invasion levels which may be due to profit-taking, fears of increased Opec production, or hopes that peace breaks out in Ukraine.

USDCAD gains are also fueled by fears of a more-hawkish than expected FOMC meeting result on Wednesday. The Fed may take the view that the Russia/Ukraine war is too far removed from American soil and concentrate on fighting inflation.

USDCAD will ignore today’s data and take direction from S&P 500 price action.

USDCAD technical outlook

The intraday USDCAD technicals are bullish while prices are above 1.2710, looking for a break above 1.2900 to test resistance in the 1.2970-1.3030 resistance zone. A drop below 1.2780 shifts the focus to 1.2710.

For today, USDCAD support is at 1.2790 and 1.2740.  Resistance is at 1.2870 and 1.2910. Today’s Range 1.2780-1.2870

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Julius Caesar and Ukraine President Volodymyr Zelenskyy have good reasons to dislike the Ides of March. Marcus Junius Brutus stabbed Caesar in the back in 44 BC, while Xi Jinping is doing the same to Zelenskyy today.

China supports Russia’s invasion of Ukraine much to the chagrin of the western world. That support led the US to warn Beijing of significant consequences if they violate sanctions on Russia.

Asia equity markets closed mixed. Japan’s Nikkei rose a mere 0.15% while Australia’s ASX 200 dropped 0.73%. Mainland China markets were smashed as coronavirus outbreaks and lockdowns take a toll and from the lingering fall-out from some Chinese tech stocks being delisted by the Nasdaq. 

European bourses are recovering from sharp losses earlier in the session, but they are still in negative territory.  S&P 500 and DJIA futures recouped overnight losses and are pointing to a positive open on Wall Street.  The US 10-year Treasury yield dropped from 2.158% overnight to 2.108% in NY. WTI is trading 6.2% lower while gold lost 1.7%.

The Russian/Ukraine war and the US interest rate outlook are the only things that matter for markets. The ECB set the tone for tomorrow’s FOMC meeting after policymakers looked past the events in Ukraine and focused on rising inflation risks, and the Fed is likely to adopt a similar strategy.

The Fed is expected to raise rates 0.25%, and 7.9% inflation rate in February means they probably would have hiked rates 0.50% if Russia hadn’t invaded Ukraine. Those rate hike fears are driving equities lower and underpinning the US dollar.

EURUSD traded in a 1.0932 to 1.1019 range, garnering a bit of support from the drop in oil prices, and from another “short-squeeze.” Euro area and German ZEW Economic Sentiment surveys were sharply weaker than expected. The Euro area data wasn’t any better, but the results were ignored. Traders only care about war headlines and US interest rates. The intraday EURUSD technicals are bearish below 1.1050.

GBPUSD traded in a 1.3002-1.3050 range. The UK employment report was positive with the unemployment rate falling to 3.9% from 4.1% and average earnings rising. The Office of National Statistics said, “The labour market continues to recover from the effects of the pandemic with the number of unemployed people falling below pre-pandemic levels.” The news helped lift GBPUSD which remains underpinned ahead of the BoE meeting Thursday.

USDJPY climbed from 117.71 to 118.44 after the US 10-year Treasury yield touched 2.158% and then dropped to 117.94 when yields retreated.

AUDUSD was on the defensive in Asia, but prices rallied from a low of 0.7167 to 0.7205 in NY. The rebound in S&P 500 futures in early NY offset selling pressure from soft commodity prices. The minutes from the March 1 RBA meeting were not a factor.

Chart of the Day: EURUSD  

Source:  Saxo Bank

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3760 previous 6.3506

Shanghai Shenzhen CSI 300 fell 4.57% to 3,983.81

February Industrial Production 7.5% y/y (forecast 3.9%, January 4.3%)

February Retail Sales 6.7% y/y (forecast 3.0%, January 1.7% y/y)

Traders ignored stronger than expected data due to fears the latest COVID-19 outbreak and lock down measures will negatively impact growth.

Chart: China 1 month

Source: Saxo Bank