Mild risk aversion buoys US dollar
US 10-year Yields keeps most of this week’s gains
COVID-19 Delta variant exacts toll on Asia growth outlook
USDCAD open 1.2514-18, Overnight Range 1.2512-1.2528, Previous close 1.2523
FX at a Glance:
USDCAD is stuck inside the well defined 1.2400-1.2660 trading range. The latest bout of oil price swings is ignored by traders, while changes in US and Canada interest differentials, and S&P 500 moves dictate direction. Prime Minister Trudeau will reportedly call an election for September 20, hoping he is reward with a majority government for turning a $20 billion budget hole into a nearly $400 billion crater of a budget deficit.
Technical view: USDCAD is meandering aimlessly in a 1.2400-1.2600 band, albeit with a mild upward bias. The weekly downtrend, intact since June 2020, broke when prices moved above 1.2420 in July 2021, and is targeting 1.2620 on a weekly chart. A decisive break above 1.2620 targets 1.3000. For today, USDCAD support is at 1.25050 and 1.2460. Resistance is at 1.2550 and 1.2605. Today’s range 1.2490-1.2550
Chart USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
Traders didn’t show much enthusiasm overnight. Asia markets were noncommittal. Japan’s Nikkei 225 inched lower, Chinese markets slumped, and Australia’s ASX 200 rose 0.54%. European bourses all ticked higher. Wall Street equity futures are in the green as well. Oil prices are softer, gold prices are higher and 10-year Treasury yields are a tick lower.
Markets are complacent. There are few top tier economic releases until Wednesday. This weeks US CPI data may have only slightly increased the odds for a tapering announcement.
Traders are ignoring geopolitical risks. China is sabre-rattling over Taiwan and will be really annoyed if the US invites Taiwan to participate in a virtual “Summit for Democracy.” It isn’t a stretch to believe China could annex Taiwan as easily as Russia took the Crimea, world-opinion be damned. Russian and China are holding war games starting today.
The Taliban are poised to make a run at Kandahar and Britain and the US are evacuating their embassies. Israel continues to threaten to bomb Iran nuclear facilities.
FX traders reacted to the geopolitical developments with a collective yawn
EURUSD traded quietly in a 1.1732-1.1750 band. Support from better than expected Eurozone trade data quickly evaporated as the downward revision to the previous data more than erased the gain. EURUSD technicals remain bearish below 1.12770.
GBPUSD suffered from broad US dollar strength due to underlying concerns that the Fed may start to taper sooner than expected. That story is getting old, and GBPUSD is supported in the 1.3760-70 area.
USDJPY is ready to close out the week with gains, but prices have given back more than half the increases since peaking at 110.80 on Wednesday.
AUDUSD and NZDUSD traded in very narrow ranges, but remained on the defensive due to mild risks off sentiment.
Michigan consumer Sentiment data and US Import/Export price data are ahead
Chart of the Day- 10-year US Treasury yields and 10- year Canada government bonds
FX open, high, low, previous close
Source: Saxo Bank
Today’s Bank of China Fix, 6.4799 Previous day 6.4754
Shanghai Shenzhen CSI 300 fell 0.55% to 4,945.98
US CIA considering creating a Mission Center for China
China news editorial says Chinese mainland would never sit back and tolerate the US and the island of Taiwan “to break the bottom line if the US invites Taiwan to participate in the virtual Summit for Democracy,” Then it added, “there will be unprecedented storms in the Taiwan Straits.”
China and Russia will kick off a large scale joint military exercise Friday
Chart: USDCNY 1 month
Source: Yahoo Finance