Photo: pixabay

April 8, 2017

  • FOMC minutes are dovish-Committee agrees with Powell
  • Weekly jobless claims rise
  • US dollar drifts lower, but stays close to closing levels

USDCAD open  1.2610-14,  Overnight Range 1.2591-1.2626, close 1.2609

FX at a Glance

Source: IFXA/RP

FX Recap and Outlook

US Weekly Jobless Claims rose to 744,000 from and upwardly revised 719,000 last week, but the results had little impact on FX markets.  Traders are content to await Fed Chair Powell’s remarks from a virtual discussion at the IMF.

Fed Chair Jerome Powell has been telling everyone who would listen that US interest rates were not going anywhere.  He hasn’t deviated from his message since January when he said, “When the time comes to raise interest rates, we’ll certainly do that, and that time, by the way, is no time soon.” 

The minutes from the March 17 FOMC meeting emphasised that there was unanimity for the view. “All members agreed to maintain the target range for the federal funds rate at 0 to ¼ percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee’s assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time.”

Wall Street closed mixed to flat, albeit at record levels.  In Asia, Hong Kong’s Hang Seng Index and Australia’s ASX 200 finished with gains, while Japan’s Nikkei 225 index was slightly lower due to planned new COVID measures in Tokyo.  European bourses are modestly higher except for Germany’s DAX, which is flat.  S&P 500 futures are a tad firmer and have set their sights on the 4100 level.

Geopolitical tensions are making a splash in the South China Sea.  China is irate that the US sent a carrier strike group into the area.  The US reminded China that an attack against the Philippines armed forces, public vessels or aircraft would trigger American obligations under the US-Philippines Mutual Defence treaty.  Russia is worried about “a worst-case scenario” of new US sanctions because of government critic Alexei Navalny’s imprisonment.  The EU is embarrassed by “Chairgate,” after Turkey failed to provide a seat for EU President Ursula von der Leyen at a high level meeting.  None of these issues spilled into FX markets yet.

EURUSD retreated from 1.1892 in Europe to 1.1862 in NY trading.  The dovish FOMC minutes did not provide enough incentive to stoke a new “risk-on” rally and neither did Eurozone or German economic data.   EU and US interest rate differentials continue to weigh on the currency pair, as does US economic outperformance and dovish ECB-speak. The failure to break above minor resistance at 1.1920 warns that a move below 1.1850 would  extend losses to 1.1770.

GBPUSD is attempting to recover losses after falling from 1.3781 to 1.3720 overnight.  Better than  expected Construction PMI data (actual 61.7 vs forecast 54.7) and talk that the UK will achieve COVID “herd immunity” by Monday are underpinning prices and putting pressure on EURGBP.

USDJPY continues to trade with a negative bias.  Traders are starting to believe that the Fed will leave interest rates unchanged and 10-year Treasury yields have retreated below 1.65%. Japan is reportedly considering more restrictive COVID-19 measures in Tokyo and other cities.

AUDUSD and NZDUSD are consolidating in narrow ranges.  NZDUSD ignored weaker than expected Business Confidence data, and prices drifted higher from the Asia low into the NY open.

USDCAD chopped around in a 1.2591-1.2626 range overnight, but is close to unchanged in early NY trading.  Prices continue to track EURUSD moves with softer oil prices, providing a bit of a lift.   Even so, the combination of improving domestic fundamentals and bearish technicals below 1.2650 suggests the risk is to the downside.

USDCAD Technicals

The intraday USDCAD technicals are bearish below 1.2650, looking for a move below 1.2590 to extend losses to 1.2510 and then 1.2440.  A move above 1.2650 targets 1.2750.   For today, USDCAD support is at 1.2590 and 1.2540.  Resistance is 1.2630 and 1.2650.  Today’s Range 1.2550-1.2630

Chart: USDCAD 1 hour.

Source:  Saxo Bank

FX open, high, low, and previous close

Source: Saxo Bank