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August 19, 2021

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2742-46, Overnight Range 1.2651-1.2771, Previous close 1.2659

USDCAD started to rally after the FOMC minutes, but the rally stalled at 1.2660 resistance. Asia took the hand-off and scampered like a looter with a new TV. Prices climbed to 1.2770 just as early NY traders came in, then dropped to 1.2744 at the open.

USDCAD gains are fueled by falling commodity prices, including WTI oil, which dropped to $62.99/b. Canada CPI rose 3.7% y/y in July, easily topping the 3.1% forecast, but other than a brief flurry when the numbers were released, traders ignored the news, as base-effects played a role.

The extent of the USDCAD reaction to the FOMC minutes appears overdone as thin, summer markets likely exacerbated the move.

Technical view:  The USDCAD technicals are bullish above 1.2570, looking for a break above 1.2800 to extend gains to 1.2880.  A break below 1.2670 would negate the short-term upside pressure and shift the focus to 1.2570. For today, USDCAD support is at 1.2710 and 1.2660. Resistance is at 1.2770 and 1.2800. Today’s range 1.2670-1.2770

Chart USDCAD daily 0ne year

Source: Saxo Bank

G-10 FX recap and outlook

US weekly jobless claims fell 29,000, to 348,000 in the week ending August 13.  The news was offset by the Philadelphia Fed index dipping to 19.4 from 21.9.

Traders reacted to the line in the FOMC  statement saying “most participants noted that, provided that the  economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee’s “substantial further progress” criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum employment goal.”

Does it sound familiar? It should. Fed policy makers, Daley, George, Evans, Bostic, Rosengren, and Waller said the same thing in speeches since the July 28 FOMC meeting.

Nevertheless, traders were already as nervous as a frog at a French restaurant due to geopolitical concerns stemming from Afghanistan, China’s regulatory crack-down, and the spread of the COVID-19 delta-variant.  The FOMC minutes served as the tipping point, in a thin, summer market.

The 2.13% plunge in Hong Kong’s Hang Seng Index led the major equity indexes to a negative close. European bourses are also suffering. The French CAC index is down 2.66%, and the other major indexes have loss about 2.0%. S&P 500 and DJIA futures, are down around 0.65%, but off their worst levels (as of 6:40 am ET). WTI fell nearly 3.0% and gold only managed to eke out a small gain.  US 10-year Treasury yields slid to 1.23% from 1.29%.

EURUSD broke below support at 1.1700 in Asia, but found support at 1.1665.  EURUSD tracked broad US dollar sentiment with the divergent Fed and ECB interest rate outlooks pressuring the downside. There were not any Eurozone economic reports of note, leaving FX direction determined by risk sentiment. The intraday EURUSD technicals are bearish below 1.1700.

GBPUSD price action mirrored EURUSD, trading in a 1.3667-1.3757 range. The intraday downtrend is intact while prices are below 1.3720.  However, the long-term uptrend form April 2020 is intact above 1.3550.  UK data, and a somewhat hawkish Bank of England suggest downside is limited.

USDJPY continues to chop about in a 109.10-110.20 range, with prices reacting to every change in US 10-year Treasury yields. USDJPY has a bullish bias above 109.10 which is the bottom of the uptrend channel intact since April.

AUDUSD got hammered falling from 0.7242 to 0.7155.  The selling pressure due to the FOMC minutes was exaggerated by the latest COVID-19 outbreak in the country, ongoing China concerns, and falling commodity prices, particularly iron ore, which has dropped over 27% in a month.  Traders ignore the better-than-expected employment report as the results are meaningless in light of the latest covid measures.

US data includes weekly jobless claims (forecast (363,000), and Philadelphia Fed Manufacturing Index (forecast 23).

Chart of the Day- Iron ore

Source: market

FX open, high, low, previous close

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix, 6.4860 Previous day 6.4915                                  

Shanghai Shenzhen CSI 300 fell 0.66% to 4862.14

China’s Xi Jinping reportedly wants to shift the country closer to its communist roots, as evidenced by regulatory crackdown in private sector.

China’s MIIT found 43 apps that violated data transfer rules

Chart: USDCNY 1 month

 Source: Yahoo Finance