Source: Pixabay

July 8, 2021

US dollar soars, equities fall, as FOMC minutes open door to taper

Jobless Claims 373,000 (forecast 350,000, last week 371,000)

US dollar opens higher against Commodity currencies

USDCAD open 1.2565-69,  Overnight range,  1.2481-1.2589,  Previous close 1.2484

FX at a Glance

FX Recap and outlook

The FOMC minutes suggest that policymakers were not as complacent towards inflation and tapering as Fed Chair Powell implied in his press conference.  The minutes noted, “Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data.”

That was all traders needed to read to conclude the Fed was getting ready to hit the rate-hike road.

The major Asia equity indexes closed in the red except for Australia’s ASX 200, which squeezed out a small gain.   The French CAC index is down 2.09%, leading European bourses lower.  S&P500 futures have dropped 1.36% from the record high close yesterday.  Gold prices are ticking higher, while WTI oil prices have lost 1.0%.  US 10-year Treasury yields fell from 1.36% yesterday to 1.25% today.

Chinese authorities signalled plans to trim the Reserve Requirement Ratio (RRR), which caught markets off-guard.   The proposed cut supports small and medium-sized enterprises (SME), which may have been hurt by the rise in commodity prices this year.

US weekly jobless claims were higher than forecast but close to last week’s upwardly revised result. The news did not have any impact on FX.

EURUSD recovered losses following the FOMC minutes, rising from a low in Asia of 1.1785 to 1.1837 at the NY open, partly due to gains in USDCNY, on concerns that the PBoC will adopt a dovish tack.  A result of the ECB Strategy Review is that they will tweak the inflation mandate from “below, or close to 2.0%” to just 2.0%.  The intraday EURUSD downtrend is intact below 1.1870.

GBPUSD is trading at the bottom of its overnight 1.3753-1.3804 range, due to broad US dollar demand following the FOMC minutes.   Prices may have been weighed down due to an absence of  domestic GBPUSD buyers who were still celebrating  St George slaying the Danish dragon.  A steep rise in new COVID-19 cases concerns, especially as the UK plans to fully remove COVID-19 restrictions by July 19.   GBPUSD needs to trade above 1.3850 to negate the short-term downtrend.

USDJPY traders appear to have finally noticed the plunge in Treasury yields and dropped from 110.67 to 109.73, where it trades in NY.

AUDUSD fell to 0.7420 from 0.7488.  Talk that China may need to ease rates to re-boot a slowing economy, combined with dovish comments by RBA Governor Philip Lowe and demand for US dollars after the FOMC minutes weighed on the currency.  The governor repeated that tapering bond purchases does not mean stimulus is being withdrawn.  He also said rate hikes depend on inflation, and inflation wouldn’t be at a sustainable target until 2024.

USDCAD rallied as WTI oil prices fell while getting an added boost from broad-based US dollar demand. The break above 1.2500 snapped a long term downtrend and triggered stop-loss buying.  USDCAD gains may face headwinds tomorrow if Canada’s Labour Force Survey shows new jobs exceeding the 195,000 forecast.  USDCAD may be undermined if Opec and UAE reach a deal and WTI prices stay above $70.00/barrel.

USDCAD traders are looking ahead to Friday’s Labour Force Survey with a robust gains expected. (forecast 195,000)

USDCAD technical outlook

The intraday USDCAD technicals are bullish above 1.2510, looking for a break above the overnight high of 1.2589 to extend gains to 1.2650 which is a multiple top from the middle of March.  For today, USDCAD support is at 1.2520and 1.2480. Resistance is at 1.2590 and 1.2620   Today’s range 1.2520-1.2590

Chart USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank