Photo: Pixabay

June 23, 2022

  • Fed analyst forecasts 67% chance of recession in 2 years
  • Weak Eurozone PMI’s sink EURUSD
  • US dollar opens mixed: JPY outperforms, GBP underperforms                                                                                                           

FX change at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2974-78, overnight range 1.2938-1.2986. close 1.2947

USDCAD continued to bounce inside a 1.2900-1.3000 band.  Bulls and bears battled it out without a clear winner as expectations for a hawkish Bank of Canada monetary policy meeting July 14, contrasted with a hawkish Fed outlook and predictions for a US recession.

Canada’s CPI was a hotter than hot 7.7% y/y in May and Core-CPI rose 6.1%.  The BoC has a problem.  Their inflation measuring stick of CPI-trim, CPI-medium- and CPI-common are two to three times above the Bank’s target level.  The results increase the risk of a 1.00% rate hike at the July 13 meeting.

Recession woes are weighing on oil prices.  WTI is trading with a negative bias in a $102.36/b-$105.08/b rise after API weekly crude inventory data reported a 5.6 million barrel increase.  Prices are also undermined by Putin’s comments boasting that oil supplies to China and India are growing noticeably.

USDCAD direction will be determined by the prevailing risk mood which is currently dismissing recession risks as evidenced by the 0.34% gain in SP500 futures.

There are no Canadian economic releases of note today.

USDCAD technical outlook

The intraday USDCAD technicals are mildly bearish while prices are below 1.2990, looking for a move below 1.2905 to test support in the 1.2870 area. Longer term, USDCAD is directionless inside a 1.2870-1.3070 band.

For today, USDCAD support is at 1.2905and 1.2860. Resistance is at 1.2990 and 1.3020. Today’s Range 1.2905-1.2990

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The risk of a recession in the USD is about fifty percent in the next four quarters and rises to two-thirds in two years, according to Fed analyst Michael T Kiley.  The math is indisputable (F(ΔU(t+h)) PΔU0.80(t+h).  Not to me.

The numbers look like someone threw up their Alphabets.

The math doesn’t matter.

Traders reacted to the report and hawkish comments from Fed Chair Powell’s congressional testimony to buy bonds and US dollars while selling stocks.  Wall Street closed with minor losses across the board.

Asian markets shrugged off the news and closed flat to modestly higher, except for Chinese markets.

The Hang Seng ended its session with a 1.25% gain.  European bourses opened soft and remain underwater due to weak Eurozone PMI data. The German Dax is down 0.90%. S&P 500 futures are in positive territory, while the 10-year Treasury yield is at 3.12%.

Norges Bank (Norway’s Central Bank) has taken point on the Eurozone rate hike trail. They surprised analysts, hiked rates 0.50% to 1.25%, and set the stage for another 0.25% bump in August.

US weekly jobless claims data was unchanged from the unrevised results but modestly above the 227,000 predicted.

EURUSD traded sideways in Asia and then dropped from 1.0580 to 1.0484 in Europe after German, French and Eurozone PMI reports were weaker than usual. The four week average rose 4,500 which forced S&P 500 futures to give back some of their overnight gains.

The results were not totally unexpected, and EURUSD bounced to 1.0510 in NY, trading helped by rebounding S&P 500 futures.

GBPUSD traded with a negative bias in a 1.2172-1.2265 range. Prices found the bottom after UK PMI data disappointed. News that London lost 40% of its IPO business to European centers did not help sentiment and Brexit is to blame.  GBPUSD technicals are bearish while prices are below 1.2420.

USDJPY dropped from 136.21 to 135.14 on the heels of US recession talk that drove the 10-year Treasury yield from 3.30% on Tuesday to 3.12% today.

AUDUSD dropped to 0.6871 from 0.6926 due to safe-haven demand for US dollars on recession fears. Traders ignored the S&P Manufacturing PMI report.  NZDUSD traded in narrow 0.6250-0.6286 range with prices underpinned by news Fonterra raised its 2022-2023 Farmgate milk price by 0.50 cents.

Day 2 of Fed Chair Powell’s Congressional testimony is ahead.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.7079 Previous 6.7109

Shanghai Shenzhen CSI 300 rose 1.72% to 4.343.88, Previous close 4,270.62

China’s Cabinet promises to boost auto industry

Chart: USDCNY 1 month

Source: Yahoo Finance