February 13, 2024

  • US CPI falls but less than expected.
  • GBPUSD gives back gains from UK employment data.
  • US dollar soars after inflation data.

FX at a glance

Source: IFXA

USDCAD Snapshot: open 1.3447-51, overnight range 1.3442-1.3537, close 1.34551.

USDCAD spiked to 1.3537 from 1.3440 after US CPI disappointed markets.  Traders were positioned for January CPI to drop 0.5% from December’s 3.4% result. It only fell 0.3% and weak USDCAD short positions scrambled to cover.

The reality is nothing has changed. The Fed will be cutting rates and whether it occurs in May or June is really no big deal.

USDCAD is also being weighed down by narrowing CAD/US bond spreads.  The 2-year CAD/US spread has narrowed by 10.2 bps in the past week.

WTI oil prices traded in a $76.88- $77.83/b range overnight.  Prices got a little support from a Bloomberg story that said the International Energy Agency is forecasting a 1.2 million barrel/day increase in world consumption for 2024. However the forecast is lower than its previous estimate.

There is no Canadian data.

USDCAD Technicals

The USDCAD intraday technicals flipped from bearish to bullish in the wake of the inflation data. USDCAD surged above the 1.3470 downtrend line (hourly chart) from February 6 and above short term resistance at 1.3510 to peak at 1.3527. 

The downtrend line from the November 1 peak comes into play at 1.3550 while the uptrend line from the beginning of the year (daily chart) is at 1.3410 which suggests 1.3410-1.3560 will be the trading range for the near term.

For today, USDCAD support is at 1.3440 and 1.3410. Resistance is at 1.3550 and 1.3580. Today’s range is 1.3470-1.3570

Chart: USDCAD  daily

Source: Daily FX

G-10 FX recap

Fed Chair Jerome Powell is hoped that today’s Inflation data would be his Valentine.  It was, but it was tainted.

January CPI fell to 3.1% y/y (December 3.4%) which was a tad hotter than the 2.9% forecast. Core-CPI (ex food and energy) was unchanged at 3.9% (forecast 3.7%).

Mr Powell may be jumping the gun on romance day but if he is disappointed with today’s data he can get back in the mood by listening  to Bloomberg’s John Authers Valentines playlist on Spotify and Apple music.  

Today’s data may have disappointed traders, but it did nothing to suggest that the Fed will be deterred from cutting rates by 75 bps in 2024. 

Bond traders were not impressed and they drove the US 10-year Treasury yield to 4.28% compared to  yesterday’s close of 4.179%.

EURUSD plunged from a pre-CPI peak of 1.0799 to 1.0703 in the immediate aftermath. Stop-loss selling was the main reason behind the plunge. Earlier, the German ZEW sentiment increased from 15.2 in January to 19.9 in February.

In Switzerland, a sharp drop in January CPI to 1.3% y/y, which easily beat the forecast of unchanged (1.7% y/y), opened the door to earlier than expected SNB rate cuts. USDCHF jumped from 0.8751 to 0.8818 on the news but the US data reversed the entire move.

GBPUSD  plunged to 1.2581 on the heels of disappointment from the US CPI data, after flirting with 1.2692 just ahead of the release.  UK employment data had given the currency a boost in Europe as job vacancies and wage growth fell. GBPUSD was also supported by comments from BoE Governor Andrew Bailey yesterday. He said he was not overly concerned about an economic downturn as it was likely to be short and shallow.

USDJPY soared to 150.58 from an overnight low of 147.27  due to surging US Treasury yields. That rally should attract the attention of BoJ and Finance Ministry officials.

AUDUSD  erased its earlier gains following positive Westpac Consumer Confidence data (actual 6.2%, previous -1.3%).  AUDUSD dropped from 0.6538 pre-CPI to 0.6463 afterwards.

NZDUSD suffered a similar fate, falling to 0.6062 from 0.6134 in a move exacerbated by lower New Zealand inflation expectations data.

 USDMXN traded in a 17.0630-17.1050 band pre-CPI then blasted higher to 17.1990, in its wake. Expectation for the Fed to leave rates unchanged for longer are helping to validate Banxico’ s view that rate “risks were skewed to the upside.”

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: closed 7.1036, expected 7.1996, previous 7.1063

Shanghai Shenzhen CSI 300 closed- Feb. 8/24- 3364.93.

Chinese markets will be closed -Lunar New Year

Chart: USDCNH daily

Source: Daily FX