Source: Wikimedia

May 16, 2022

  • Weak China data, Russian rhetoric roils markets
  • EU downgrades 2022 GDP, sharply increases inflation forecasts
  • USD opens mixed but underpinned by negative risk sentiment

FX change at a glance:

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2938-42, overnight range 1.2897-1.2980, previous close 1.2908

USDCAD dropped steadily on Friday, falling from 1.3047 in Asia to close at 1.2908.  Comments from Fed Chair Jerome Powell and Cleveland Fed President Loretta Mester soothed fears around sharp rate hikes, after both suggested 0.75 bp increments were unnecessary. Risk sentiment improved, stocks rallied, and the greenback retreated.

The USDCAD selling continued in early Asia trading driving prices to the session low of 1.2897 before weaker than expected China Industrial Production and Retail Sales reports sparked a bout of risk aversion trading. USDCAD soared, rising to 1.2975 before retreating during the European session.

USDCAD continues to track S&P 500 moves but may get a bit of a reprieve Wednesday when StatsCanada releases April inflation data (forecast 5.5% y/y). A higher than expected result may lead to speculation of more aggressive BoC rate hikes.

Oil prices surged higher Friday, rising from $106.34 to finish the day at $110.19, in part because of Russia’s threat to end crude shipments to Sweden and Finland if they persisted in joining NATO. Saudi Aramco shareholders just smiled as Mohammad bin Salam’s piggy bank reported an 80% jump in Q1 profits to $39.5 billion, compared to $21.7 billion at the same time, last year.

Canada Manufacturing and Wholesale Sales reports are ahead.

USDCAD technical outlook  

The intraday USDCAD turned bearish when the retreat from 1.3060-70 area broke below support at 1.2990.  There is a minor downtrend in play while USDCAD is below 1.2970 on an hourly chart, which suggests another test of the April 21 uptrend line which is at 1.2890 (4 hour chart). A decisive break below that level would target 1.2670.

For today, USDCAD support is at 1.2905 and 1.2870.  Resistance is at 1.2970 and 1.3005.  Today’s Range 1.2880-1.2960.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

“You are in the psycho circus, and I say welcome to the show.” When that song was released, by Kiss in 1998, Vlad the Mad Putin was just the guy in charge of the FSB, responsible for terrorizing Russian citizens. Today, he is the head clown of the Psycho Circus, and the world is his playground.

The week started the same way it ended. Russia told Sweden and Finland there would be “far-reaching consequences” if they joined NATO. Turkey, a NATO member, sides with Russia and said it would oppose the Nordic country’s application. NATO seems to forget that the Turkish president wants to establish the “Erdogan Empire,” which raises questions about Turkey’s membership status.

FX and equity markets reacted negatively to weaker than expected Chinese Retail Sales and Industrial Production data, even though the COVID lockdowns skewed the results. Bloomberg reported that not one car was sold in Shanghai (population 26.32) in April.

European equity markets are trading mostly lower. The German DAX index is down 0.56% while the UK FTSE 100 is flat. Wall Street futures point to a negative open. WTI slipped 0.82%, and gold lost 0.25%. The 10-year US Treasury yield is 2.917%.

The Russian version of the “Big Mac Attack” is no more. McDonald’s proclaimed a “Big Mac Fall-back” and said they will exit from Russia.

EURUSD traded in a 1.0390-1.0437 range, moving sideways in Asia then climbing in Europe. The EU chopped its 2022 GDP forecast to 2.7% from 4.0% and raised its inflation forecast to 6.1% from 3.5%. The news had little impact on markets as the EU just reacted to reality. ECB officials continued to suggest a rate hike was likely in July, but the comments were ignored. EURUSD remains bearish below 1.0610.

GBPUSD dipsy-doodled in a 1.2219-1.2296 range ahead of what is expected to be a strong employment report on Tuesday. The UK inflation outlook and the ongoing Northern Ireland, UK, and EU Brexit drama will overshadow the results. GBPUSD technicals are bearish below 1.2300.

USDJPY slumped in Asia and rebounded in Europe, trading in a 128.71-129.63 range. Safe-haven demand for yen in Asia gave way to USDJPY demand as the US 10-year Treasury yield climbed from 2.88% to 2.92%.

AUDUSD and NZDUSD flip-flopped with risk sentiment. NZDUSD is at the top of its 0.6231-6291 range while AUDUSD traded in a 0.6874-0.6959 range and sits at 0.6926.

There are US economic reports of note today.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7871   Previous 6.7898

Shanghai Shenzhen CSI 300 fell 0.80% to 3,956.54

April Industrial Production -2.9%, forecast 0.7%, March 5.0%

April Retail Sales -11.1%, forecast -6.0%, March -3.5%

Shanghai to gradually reopen businesses starting today

Chart: USDCNY 1 month

Source: Yahoo Finance