May 29, 2023

  • Debt ceiling suspended; risk sentiment improves.
  • Markets are quiet due to US and European holidays.
  • USD drifts lower in dull session.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3596-00, overnight range 1.3586-1.3617, close 1.3617

USDCAD chopped around with a mildly bearish bias inside a narrow trading range. Traders are looking ahead to Wednesday’s March GDP data, month end rebalancing flows, and Friday’s nonfarm payrolls data.

The Bank of Canada meets June 7 and even though Governor Tiff Macklem paused rate hikes he warned of upside risks to the outlook.  Those risks may bear fruit if the GDP report is stronger than expected.

It will be a sleepy FX session today and the economic data calendar is empty.

USDCAD Technical Outlook

USDCAD is consolidating its gains since May 23 and remains in an uptrend while prices are above 1.3540. A break above resistance in the 1.3650-60 area targets 1.3800 while a move below 1.3540 puts 1.3400 in play.

For today, USDCAD support is at 1.3560 and 1.3520.  Resistance is at 1.3620 and 1.3650.

Today’s range 1.3550-1.3620

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook  

The first long weekend of the US summer has arrived, and the party has started. The beer is on ice (except Bud-lite) and both BBQ’s and guests are lit. And its only breakfast!

Europeans are on holiday as well. France, Germany, Austria, Denmark, and Norway are closed for Whit Monday.

The US and European holidays sucked liquidity from global markets even as fears for a US debt default faded. President Biden and House Speaker Kevin McCarthy agreed to raise or suspend the debt ceiling. It’s a deal, but not a done-deal. The House has to agree to the terms, and it took 8 votes to elect McCarthy as Speaker. So, not a slam-dunk.

The focus shifts to the Fed. Friday’s hot PCE data (actual 0.4% vs forecast 0.3%) suggested higher US rates. The odds that the FOMC hikes rates by 25 bps are 66.4% (Fedwatch).

The first rate cut is expected in November, which if it occurs would only bring rates down to current levels.

Asian equity indexes closed with gains except for those in China. The Japanese Nikkei 225 index rallied 1.03% while Australia’s ASX 200 index rose by 0.88%. The Hong Kong Hang Seng index fell 1.04%.

European bourses are in negative territory except for the German Dax which has risen by 0.74%. The US 10-year Treasury yield is 3.85%. S&P 500 futures have climbed 0.27%. The US 10-year Treasury yield is 3.85%.

Gold (XAUUSD)  peaked May 3 and then began a downtrend channel bound by $1975.00 and  $1914.00. However, the drops stalled at$1935.00, the March uptrend line. Revised US interest rate forecasts triggered the sell-off.

The Turkish lira sank on news that incumbent President Recep Erdogan won the election he tilted in his favour.

EURUSD is at the bottom of its 1.0711-1.0743 band.  Trading was very light due to Euro area holidays and US and ECB interest rate differentials that favour the Americans.  

GBPUSD traded negatively in a 1.2337-1.2371 range. The weak UK economy and stubbornly high inflation led to analysts to suggest that the market was expecting too many Bank of England rate hikes resulting in long sterling trades being covered.

USDJPY rallied in a 149.19-140.91 range, supported by the revised outlook for Fed rate hikes and by the Bank of Japan’s dovish bias.

AUDUSD drifted in a 0.6522-0.6553 range.  Prices are on the defensive because of downgraded forecasts for Chinese growth and lower commodity prices.

There are no US economic calendar is empty.

Chart of the Day-Gold (XAUUSD)

Source: Saxo Bank

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.0575, previous 7.0760

Shanghai Shenzhen CSI 300 fell 0.44% to 3833.94.

Chart: USDCNY 6 month

Source: Bloomberg