Source: Wikipedia

May 4, 2022

  • Markets moving sideways ahead of Fed
  • ECB’s Schnabel speculates about July rate hike
  • USD opens mixed- small gains against GBP and CHF

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2806-10, overnight range 1.2808-1.2841, previous close 1.2841

USDCAD traded lower yesterday, falling from 1.2892 to 1.2841 at the close, and continued to slide overnight, trading in a 1.2808-1.2841 band. The retreat was driven a small S&P 500 rally, a minor retreat in the US 10-year yield, and an end of day dip in US crude inventories, as per API.

Steady to firm oil prices continue to act as a drag on USDCAD gains. WTI climbed from $102.98/barrel to $106.41/b overnight as plans for an EU Russian oil embargo take shape. The plan calls for phasing-out Russian crude within six months and refined products by year-end. However, Opec’s latest forecast predicts a 1.9 million barrel/day surplus (previous forecast 600,000b/day) and that tempered WTI gains.

Yesterday, Bank of Canada Senior Deputy Governor Carolyn Rogers warned of sharply higher rates saying, “the Canadian economy starting to overheat, we can’t let demand get too far ahead of supply or we risk adding further to inflation.”

Canada’s Trade data is ahead.

USDCAD technical outlook  

The intraday USDCAD technicals are bearish with the failure to extend gains above 1.2900 and the subsequent drop below 1.2830, the uptrend line from April 21. Bollinger band analysis on a daily chart shows the break below 1.2860 targets 1.2700.

For today, USDCAD support is at 1.2780 and 1.2740.  Resistance is at 1.2850 and 1.2890.  Today’s Range 1.2750-1.2850

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

It’s FOMC day, and traders are in “buy the rumour, sell the news” mode, even though the news has not been released.

European equity indexes are a tad lower after another quiet Asian session, thanks to holidays in China and Japan. US equity futures are clawing out gains, but upside momentum has stalled in early NY trading. WTI oil gained 4,0% while gold is nearly unchanged. The 10-year Treasury yield is sitting at 2.96%.

EURUSD traded sideways in a 1.0507-1.0534 band. Support from hawkish comments from ECB officials was more than offset by the proposed embargo on Russian energy. EU Commission President Ursula von der Leyen says there will be a complete import ban on all Russian oil; seaborne, pipeline, crude and refined. The EU plans to kick Russia’s Sberbank out of SWIFT. Eurozone Services PMI data and German Trade reports were nonfactors.

GBPUSD rallied to 1.2523 from 1.2468 due to speculation that the Bank of England would raise rates 0.50% on Thursday. The issue is whether the economy can handle a sharp rise in rates as growth is already slowing and it is exacerbated by the Russian invasion of Ukraine.

USDJPY trade in a tight 129.97-130.20 range due to a holiday in Japan. Gains from higher US Treasury yields were offset by safe-haven demand for yen due to geopolitical issues.

AUDUSD traded with a positive bias, rising from 0.7190 to 0.7132 due to broad US dollar weakness and a 1.6% jump in Retail Sales in March. Goldman Sachs analysts predict 0.25% rate hikes at the June and July RBA meetings.

US ADP Employment and ISM Services PMI are on tap.

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

Chart: Saxo Bank

China Snapshot -Markets closed