Source: Pixabay

March 30, 2022

  • Governments and markets sceptical about Russian withdrawal
  • EURUSD rallies even as Germany warns Russia may cut gas supplies
  • US dollar lower with month end flows a factor

FX at a Glance 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2482-86, overnight range-1.2478-1.2507, close 1.2503

USDCAD had another up and down overnight session with prices continuing to target the 1.2420-40 support zone.  Prices are closely tracking broad US dollar moves vs the majors, and those moves are being distorted by month-end and quarter-end portfolio rebalancing flows.

The S&P 500 gained 5.9% since the February 28 close which suggests portfolio mangers need to sell USDCAD to manage benchmarks and pre-dealing of those flows is one factor weighing on the currency pair.

USDCAD is undermined by firm oil prices.  WTI oil traded in a $104.61-$107.25/barrel range, supported by APR reporting US crude inventories fell by 3.0 million barrels as of last Friday.  Opec is not expected to announce any changes to its production schedule tomorrow.

The Federal government has come up with another “new plan” to cut greenhouse gas emissions since none of the plans since 2015 have worked.  The latest plan calls for $9.1 billion in spending to help eradicate Canada’s fossil fuel energy industry and replace it with windmills and clean electricity infrastructure.  The plan will not do anything to lower global green house gas emissions as China and India are increasing coal-powered plants.

The long term impact cannot be good for the Canadian dollar as raising corporate and personal taxes (via carbon charges) will make Canada less competitive, while elevating government deficits.

USDCAD technical outlook

The USDCAD technicals are bearish. The daily uptrend line from June 2021 survived many tests except for this week when prices decisively move below the 1.2560 level.  Prices have consolidated in a 1.2470-1.2550 range since but with a negative bias.  A break below the 1.2440-1.2470 zone targets 1.2280 then 1.2030.  A break above 1.2660 would negate the downside pressure.

For today, USDCAD support is at 1.2460 and 1.2420.  Resistance is at 1.2520 and 1.2560.  Today’s Range 1.2440-1.2540

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

“It’s a mixed up, muddled up, shook up world.” Lola may be the exception, but its valid for FX, equity, bond, and commodity markets.

Wall Street rallied yesterday following reports that Russian/Ukraine peace talks made progress and Russia agreed to ease up its bombing campaign and pull-back troops.  The US Department of Defence called “BS” and said Russia was merely repositioning its forces.

Traders are confused.

Risk sentiment has soured, but the US dollar has fallen.  Germany pre-announced a gas emergency and was preparing for a disruption in gas supplies from Russia.  Vladimir Putin is demanding payment in roubles and the EU said “nyet, nyet.” 

A host of Fed speakers warned about potential 0.50% rate increases but their comments were not new and largely ignored.

It is month-end and quarter-end flows that are dominating trading and distorting markets.

Asia equity markets closed on a mixed note with Australia’s ASX 200 higher while Japan’s Nikkei 225 lost ground.  European bourses are lower except for the UK FTSE 100 which is unchanged.  DJIA and S&P 500 futures are modestly lower, while gold and oil rose modestly.  The US 10-year Treasury yield recouped overnight losses and is unchanged at 2.41%.

EURUSD rallied from 1.1085 to 1.1161 due to month end US dollar selling and bullish comments from ECB officials.  Madis Muller said the APP program could end in Q3 and be followed by a rate hike.  ECB President Christine Lagarde said that “The longer the war lasts, the higher the economic costs will be and the greater the likelihood we end up in more adverse scenarios.”

Euro-area data did not support the rally.  The EU bulletin said, “In March 2022, the Economic Sentiment Indicator (ESI) dropped substantially in both the EU (-5.3 points to 107.5) and the euro area (-5.4 points to 108.5), mainly due to plummeting consumer confidence.  After reaching record-high levels in February, business managers’ Employment Expectations Indicator (EEI) also eased (-1.1 points to 114.9 in the EU and -0.9 points to 115.5 in the euro area).

GBPUSD climbed from 1.3090 to 1.3159 on month-end demand for GBP. Bank of England Deputy Governor Ben Broadbent said that the rise in energy and other commodities is the biggest hit to national income ever.  He warned that “From the narrow perspective of monetary policy it will result in the near term in the difficult combination of even higher inflation but weaker domestic demand and output growth.”

USDJPY dropped from 123.20 to 121.32 due to a combination of Japanese fiscal year end flows and modestly lower US Treasury yields.

AUDUSD outperformed against NZDUSD after New Zealand’s ANZ Business Confidence Index improved but remained weak.

The US data is second-tier and will not be a factor.

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3566, previous 6.3640

Shanghai Shenzhen CSI 300 rose 2.90% to 4,254.10

Stocks supported by strong earnings from large Banks (Bank of China and China Construction Bank)

City of Xuzhou, population 9.1 million, locked down for three days starting today

Chart: China 1 month

Source: Saxo Bank