Source: Pixabay

November 21, 2022

  • Risk sentiment sours are rising Chinese covid cases
  • Poor market liquidity this week due to US Thanksgiving, and World Cup
  • US dollar extends Friday’s rally-AUD worst performer

FX at a glance:

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3425-29, overnight range 1.3377-1.3440, close 1.3385

USDCAD seems content to travel between 1.3200-1.3500, taking its direction from broad US dollar moves, although oil prices and CAD/US 10-year yield spreads have a role.

The current spread is -69 bps (US favour). The low was -58.3 on November 7 while the peak was 78.1 on November 1.

WTI oil prices are giving USDCAD a bit of support. WTI dropped from $80.20/b to $79.08/b in quiet trading. Prices are weighed down by news of rising Covid cases in China.

The only major data is Tuesday’s Retail Sales report.

USDCAD Technical outlook

The intraday USDCAD technicals are bullish following Friday’s break above1.3390. Prices are in a minor uptrend from November 16 with the floor at 1.3360 and the top at 1.3500.  A topside break targets 1.3650 while a downside breach suggests a retest of 1.3250.

For today, USDCAD support is at 1.3390 and 1.3360.  Resistance is at 1.3460 and 1.3490

Today’s range 1.3360-1.3460

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Risk sentiment was rattled overnight although trading interest was low.

The coronavirus continues to ignore China’s Covid-zero policy. Rising numbers of new covid cases and reports of one death in a population of 1.412 billion, sparked renewed lockdown restrictions in and around Beijing.

The news fueled broad US dollar demand while Asian and European equity indexes traded with a cautious note.

There will me a large data dump on Wednesday which includes the FOMC minutes from November 2 ahead of the US Thanksgiving holiday on Thursday.

No Bud for you! Or Guinness for that matter. It’s the Lemonade World Cup, perhaps a ploy to frustrate the notorious English football hooligans. The Qatari’s pulled a fast one when they banned alcohol the day before the first game and after tickets had been bought and travel booked. English fans were appalled. Many had never seen a match sober and a sugar-high from Lemonade would not do the trick.

The English team planned to wear rainbow-coloured “OneLove” armbands to promote diversity and inclusion until someone pointed out that they could be flogged or even lose their heads.

Fed officials continue to muddle their message. Some stress the need to continue raising rates aggressively while others say its time to hit the brakes.

Asia equity indexes closed on a mixed note. Japan’s Nikkei 225 posted a modest gains while Australia’s ASX dipped. The major Chinese indexes closed with losses as well. European bourses are mixed as well. The UK FTSE 100 is slightly higher while the German Dax is a tad softer.

S&P 500 futures are picking up ground, but still down 0.27%, after the Chicago Fed National Activity index fell 0.5 in October (0.17 in September). The results suggest that the US economy is slowing which may mean a slower pace of Fed rate hikes.

EURUSD traded negatively in a 1.0227-1.0332 range due to the negative risk sentiment. ECB Chief Economist Philip Lane seemed to suggest a slower pace of rate hikes saying, “the more we’ve already done, the less we need to do. German PPI fell 4.2% m/m in October.

GBPUSD traded in a 1.1787-1.1896 range with the low seen in early NY trading. It wouldn’t be a stretch to suggest UK markets are just about closed as the country settles in to watch England beat Iran which is 3-0 at half-time. GBPUSD continues its recovery following the mid-October budget disaster. The short term technicals are bullish with a break above the 1.2000-1.2010 area targeting 1.3300.

USDJPY climbed from 140.17 to 141.95 on safe-haven demand for dollars due to rising global recession fears and rising covid cases in China.

AUDUSD traded lower in a 0.6607-0.6682 range, weighed down by the latest China covid restrictions and widespread US dollar demand.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 7.1203, previous 7.1091

Shanghai Shenzhen CSI 300 fell 0.85% to 3769.13

PboC requests banks to expand medium to long-term loans

Authorities expand lockdowns and restrictions in areas of Beijing due to Covid.

Chart: USDCNY 1 month

Source: Bloomberg