Photo: Iron Maiden

July 12, 2022

  • Weak German ZEW data greases EURUSD slid to parity
  • Global equity indexes tumble in thin markets ahead of US CPI Wednesday
  • US dollar soars on safe-haven demand

FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3029-33, overnight range 1.2994-1.3047, close 1.3005

USDCAD rallied as another wave of negative risk sentiment rippled across markets.  The gains got an added lift from the drop in WTI oil prices, and renewed US recession fears.

WTI drifted steadily lower overnight, falling from $103.35/barrel to open in NY at $101.55/b, then dropped to $98.51/b.  Traders are concerned that the latest Covid outbreak in China and elevated concerns about a global economic slowdown will lower demand.

Concern of a hotter than forecast US CPI report (forecast 8.9% Y/Y) tomorrow are eclipsing the Bank of Canada monetary policy meeting.  The BoC is widely expected to raise rates by 0.75.  However, there is a risk for a 1.00% hike. The Business Outlook Survey showed inflation expectations were rising and the BoC may act aggressively to prevent rising inflation becoming entrenched.

The Canadian data calendar is empty.

USDCAD technical outlook

The intraday USDCAD technicals turned bullish last Tuesday with the break above 1.2950 setting the stage for a retest of resistance in the 1.3080 area.   A break below 1.2930 negates the intraday upward pressure and targets 1.2860.

For Today, USDCAD support is at 1.2970 and 1.2930.  Resistance is at 1.3020 and 1.3070.  Today’s Range 1.2970-1.3050.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

The horses are skittish and running for the barn.

The White House didn’t help.

Press Secretary Karine Jean-Pierre channeled her inner-economist and said, “On Wednesday, we have new CPI and inflation data, and we expect the headline number, which includes gas and food, to be highly elevated, mainly because gas prices were so elevated in June,” She dismissed the data as being backwards and out of date, pointing out energy prices have come down from their peaks.

Traders concluded that if the politicians are downplaying the news, the data is likely worse than expected.

Global equity market indexes tumbled, bonds and the US dollar rose, while commodity prices fell.

It was a risk-off overnight session, with German and Eurozone ZEW Surveys the only data of note.

In addition, rising Covid cases in China followed by renewed lockdown measures, and ongoing fears of a European are energy crisis exacerbated the negative sentiment.

EURUSD reached parity in early NY today after the single currency fell from 1.0055 overnight. Parity is just a number, and there is nothing but air between 0.9990 and 0.9670. EURUSD is beset by a perfect storm of ultra-low rates, soaring inflation, and a war in Ukraine. The German and Eurozone ZEW survey were weaker than expected. 

The Survey noted, “The current major concerns about the energy supply in Germany, the ECB’s announced interest rate hike, and further pandemic-related restrictions in China have led to a considerable deterioration in the economic outlook. The experts assess the current economic situation significantly more negatively than in the previous month and have further lowered their already unfavourable forecast for the next six months.”

GBPUSD plunged from 1.1908 to 1.1809 due to broad US dollar strength, political uncertainty, and a poor outlook for the UK economy. BoE Governor Andrew Bailey isn’t helping. The central bank has been slow to react to rapidly rising inflation, and Mr Bailey’s recent comments suggest he believes the gains are transitory. He said he still believed inflation would fall sharply in 2023. 

USDJPY traded defensively in a 136.81-137.53 range. The US 10-year Treasury yield drop to 2.92% from 2.995% to 2.924% and safe-haven demand for yen weighed on prices. US Treasury Secretary Janet Yellen she did not discuss FX intervention with Japanese officials. She did note that the more recent fall in the yen seemed to further than warranted by interest rate differentials, then said there was active speculation.

AUDUSD and NZDUSD traded sideways. AUDUSD traders ignored weak Business Conditions and Business Confidence data, while NZDUSD await the RBNZ monetary policy announcement tomorrow.

There are no top tier US economic reports today.

Chart of the Day:  EURUSD since inception

Source: Saxo Bank

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.7287, previous 6.960

Shanghai Shenzhen CSI 300 fell 0.94% to 4,313.62

China June CPI 2.5% y/y vs 2.1% in May.

Rising Covid cases and lockdown measures weigh on stocks.  City of Wugang (population 843,000) shut for three days)

Chart: USDCNY 1 month

Source: Yahoo Finance