Source:  Pixabay

February 7, 2022

  • Russia/Ukraine and Iran/Nukes overhang markets
  • US 10-year Treasury yield 1.93%, looking for 2.0%
  • US dollar see-saws ahead of Thursday CPI

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot: Open 1.2692-96, Overnight Range-1.2666-1.2715, previous close 1.2666

USDCAD is riding a roller coaster. Yesterdays drop from 1.2752 to 1.2658 stalled and USDCAD climbed steadily reaching 1.2699 in Asia before consolidating the gains in a 1.2670-99 range in Europe. USDCAD added to its gains in NY trading after the US 10-year yield rose above 1.95%.

USDCAD direction is determined by broad US sentiment and that sentiment is somewhat confused ahead of Thursday US inflation report. If CPI is higher than the 7.3% y/y forecast, it will support calls for a 0.50% Fed rate hike in March while less than 7.3% suggests just a 0.25% increase.

Without any data to worry about, traders turned their attention to geopolitics. Russian President Vladimir Putin said he wanted to stress that  “if Ukraine joins NATO, the European countries will be automatically pulled into a war conflict with Russia.”

The Iran Nuclear talks have resumed, and a deal would boost world oil supply by 1.0 million barrels per day. WTI dropped below minor support at $90.45/b to $89.04 in early NY before bouncing to $89.70.

The Canadian Trudeau-Vaccine protest is blocking Windsor’s Ambassador Bridge, disrupting traffic from over 3,500 that use the crossing daily. This protest smells like it is being heavily influenced by well-funded and organised US right-wing agitators using Trump style tactics.

Canada December Trade data flipped to a tiny deficit (actual $0.14 billion) compared to November’s $3.13 billion surplus.

Technical view:  USDCAD is consolidating recent gains in a 1.2650-1.2800 range. The hourly USDCAD technicals are bullish above 1.2650, the January 21 uptrend line as well as being support from a series of hourly bottoms. A move above 1.2800 or below 1.2650 is required to snap the range and provide fresh direction.

For today, USDCAD support is at 1.2650 and 1.2610.  Resistance is at 1.2750 and 1.2790.  Today’s Range 1.2650-1.2730

Chart USDCAD hourly

Source: Saxo Bank

G-10 FX recap and outlook

FX markets traded cautiously. Traders awaited more news about Russia and Ukraine while keeping an eye on choppy equity markets and firm US Treasury yields.

Asia equity indexes closed mixed. Japan’s Nikkei 225 and Australia’s ASX 200 rose 0.13% and 1.07%, respectively, while Hong Kong’s Hang Seng and other mainland China markets lost ground. European bourses are modestly lower as are S&P 500 futures. Gold ticked lower while WTI plunged 1.6%.

The US 10-year Treasury yield pushed above the 1.95% resistance area and is setting the stage for a move to 2.0%.

EURUSD traded in a 1.1397-1.1448 range with gains capped by rising US Treasury yields and ECB President Christine Lagarde trying to walk back her hawkish comments last week. Ms Lagarde said there was no need for big monetary policy tightening in the eurozone because inflation is set to fall back to 2.0%. She told the European parliament, “The chances have increased, that inflation will stabilize at our target.” EURUSD has support at 1.1400 and resistance at 1.1500.

GBPUSD is trading choppily in a 1.3509-1.3563 range.  Prices were underpinned by EURGBP selling and the outlook for more aggressive tightening by the bank of England.

USDJPY rallied from 115.07 to 115.25 and then added to those gains in NY reaching 115.54.  The gains coincided with the US Treasury yields rising to 1.954%. The Biden administration agreed to roll back Trumps steel tariffs.­

AUDUSD consolidated recent gains in a 0.7108-0.7137 range.  Prices received an added boost after a former RBA board member John Edwards said the RBA needs to raise interest rates four times in 2022.  Mr Edwards said that due to the outlook for the domestic economy to grow it sets the stage for slow and incremental rate hikes.  NZDUSD lagged AUDUSD gains

The US Trade Deficit widened to $80.7 billion from a deficit of $79.33 billion

Chart: US 10-year Treasury yield

Source: CNBC

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3569, previous 6.3580

Shanghai Shenzhen CSI 300 fell 0.55% to 4608.77

Caixin January Services PMI 51.4 vs December 53.1

Chart:  USDCNY one month

Source: Saxo Bank