Source: Wikimedia

March 4, 2022

  • Risk sentiment sours after Russia bombs Ukraine nuclear plant
  • Robust NFP keeps US dollar bid
  • CAD underperforms as US dollar opens mixed.

FX at a Glance 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2729-33, overnight range-1.2672-1.2762, close 1.2681

USDCAD is trading like its diving off a bridge strapped to a bungee cord. Yesterday hopes for successful talks between French President Macron and Vladdy Putin improved risk sentiment and drove USDCAD from Wednesday’s 1.2742 peak to 1.2589 in early European trading.

The talks were not a success which was emphasised by Mr Macron when he said, “the worst is yet to come.”

Fed Chair Powell said, “the Fed would do whatever it takes to control inflation,” renewed US dollar demand, underpinning USDCAD.

Bank of Canada Governor Tiff Macklem delivered a somewhat hawkish speech. He justified the need to raise interest rates and announced that Quantitative Tightening would be starting soon with plans to dramatically shrink its balance sheet.

FX markets ignored the BoC and focused on geopolitical issues. Overnight, Russia bombed a Ukrainian nuclear power plant. Traders were spooked by the word “nuclear” and risk sentiment soured. USDCAD rallied and its at the top of its overnight range in NY trading.

USDCAD is vulnerable to further gains today as traders may be unwilling to hold positions over the weekend in case the Russia/Ukraine war turns even nastier.

USDCAD technical outlook

The USDCAD technicals are neutral in a 1.2580-1.2850 range. The intraday technicals are modestly bullish above 1.2680, looking for a break above 1.2750 to extend gains to 1.2850.  A break below 1.2680 suggests a retest of 1.2590.

Longer term, if you ignore the pandemic spike from the middle of March 2020 to the end of May 2020, Fibonacci retracement analysis suggests a risk of 1.3040 while prices are above 1.2640.

For today, USDCAD support is at 1.2710 and 1.2640.  Resistance is at 1.2790 and 1.2840. Today’s Range 1.2710-1.2810

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

There is plenty of Central Bank speak and top-tier economic data, but traders only care about Russia headlines and NFP data

The US added 678,000 jibs in February, handily beating the 400,000 forecast and the unemployment dropped to 3.8% from 4.0.  The US dollar extended its gains following the data.

The news that Russian bombed the Zaporizhzhia nuclear plant evoked memories of Chernobyl, Hiroshima, and Nagasaki.

Traders scrambled to financial fall-out centers like US Treasuries and safe-haven currencies, including AUDUSD due to its resources and distance from the conflict.

US nonfarm payrolls are expected to show a gain of 400,000 compared to 467,00 in January and the unemployment rate to dip to 3.9% from 4.0%. Average hourly wages are expected to rise 0.5% m/m, and if the result is sharply higher, it will renew the wage inflation debate. Nevertheless, the data will take a backseat to the Russia/Ukraine war.

European stock markets were in free-fall but stabilized in NY trading. The German DAX is down 2.92% and the UK FTSE 100 lost 2.86%. (as of 9:00 am ET). Wall Street futures are also in the red with S&P500 down 0.72%. Gold gained 0.53%, and WTI oil is at $111.38. The US 10-year Treasury yield dropped from 1.856% yesterday to 1.762% today.

EURUSD is getting spanked. The single currency blew through support at 110.00 and plunged to 1.0882 in NY trading, post NFP. China has emboldened Putin after they sided with Putin and voted against an International Atomic Energy Agency resolution to guarantee the safety of Ukraine nuclear facilities. China may as well have hung a target on the sites. Eurozone January Retail sales (actual 0.2% m/m vs forecast 1.3%) were weaker than expected, an ignored.

GBPUSD is suffering from broad US dollar demand dropping to 1.3222 from 1.3357. Prime Minister Boris Johnson indicated he would put Article 16 on the shelf, but the news failed to give sterling any support. UK Construction PMI beat estimates but was a non-factor.

USDJPY is rangebound in a 1.1526-115.55 band torn between the risk of sharply higher US rates and safe-haven demand for yen.

AUDUSD is trading like a safe-haven currency. And it should. Australia is far-removed from the conflict in Europe and has a wealth of resources and a central bank that may be forced to start raising interest rates. All of the above helped drive AUDUSD from 0.7302 to 0.7374 today.

Chart of the Day: AUDUSD and 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 6.3288 previous 6.3016

Shanghai Shenzhen CSI 300 fell 1.21% to 4,496.43

Chart: China 1 month

Source: Saxo Bank