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Geopolitical tensions simmering
US dollar opens with small losses.
USDCAD open 1.2546-50, Overnight Range 1.2530-1.2566, close 1.2528
FX at a Glance
FX Recap and Outlook
FX markets did not have any conviction overnight and prices opened in NY little changed from Fridays close.
Fed Chair Jerome Powell was interviewed on CBS “60 Minutes.” He stuck to his dovish script. He said “The economy has changed. And what we saw in the last couple of cycles is that inflation never really moved up as unemployment went down. We had 3.5% unemployment, which is a 50-year low for much of the last two years before the pandemic. And inflation didn’t really react much. That means that we can afford to wait to see actual inflation appear before we raise interest rates.
Geopolitical tensions are rising. The US is concerned about China’s aggressive actions against Taiwan according to the US Secretary of State. He said “All I can tell you is we have a serious commitment to Taiwan being able to defend itself. We have a serious commitment to peace and security in the Western Pacific. We stand behind those commitments. And in that context, it would be a serious mistake for anyone to try to change that status quo by force.”
The US and EU are concerned about Russia’s troop build-up along the Ukraine border as memories of Crimea are still fresh. In the Middle East, an Iranian nuclear facility lost power due to “cyber-terrorism.” Iran believes Israel was involved. EU tariffs on imports of Chinese aluminum product take effect tomorrow. FX traders are ignoring these developments.
EURUSD is drifting higher after finding a bottom in Asia, but is struggling to maintain the momentum. Eurozone Retail Sales rose 3.0% m/m in February, compared to the downward revised, 5.2% drop in January. ECB officials, including President Christine Lagarde, repeated dovish comments, which analysts suggest is setting the stage for an extension to the Pandemic Emergency Purchase Program (PEPP). The EURUSD technicals are bullish above 1.1820, looking for a break above 1.1930.
GBPUSD dropped in Asia, then rallied in Europe, climbing from 1.3671 to 1.3767 in NY. Prices are supported by the easing of lockdown restrictions, and expected economic outperformance compared to the Eurozone. The technicals suggest a move above 1.3780 would target 1.3850.
USDJPY dropped to 109.26 from 109.76, in part, because of the perception that renewed upside risks to US Treasury yields are fading.
AUDUSD and NZDUSD traded quietly, moving with the prevailing US dollar sentiment. Traders are awaiting the RBNZ monetary policy meeting, Wednesday, and Thursday’s Australia employment report.
USDCAD is trading at the bottom of its overnight range, coinciding with EURUSD climbing to 1.1918. The bearish USDCAD bias is due to the blow-out Canadian employment report on Friday (303,100 new jobs), steady to firm oil prices, and expectations for a strong post-pandemic, domestic economic recovery and bearish technicals below 1.2650.
The Bank of Canada Business Outlook Survey will be a waste of time as it was conducted before the latest wave of lockdown restrictions in large parts of the country.
There are not any US economic data reports of note today.
The USDCAD technicals are bearish in a well-defined 1.2500-1.2650 band. A break below 1.2500 targets 1.2440, and 1.2370. A break above 1.2650, suggests a short term bottom is in place at 1.2370 and would shift the focus to 1.2760. For today, USDCAD support is at 1.2510 and 1.2470. Resistance is at 1.2580 and 1.2620. Today’s Range 1.2480-1.2580
Chart: USDCAD daily
Source: Saxo Bank
FX open, high, low, and previous close