Soft 10-year Treasury yields weigh on greenback
US dollar slides against Commodity currency bloc, and is unchanged against EUR
FX Week at a Glance
FX Recap and Outlook
The global stock market juggernaut continues to crush all opposition. Prices are higher than Snoop Dogg on a Saturday night, and traders are “feeling groovy.” Chinese data kept the party rolling. Q1 GDP surged 18.3%, a tad less than expected. Traders ignored analysts cautioning that the results are skewed because of base rate effects and workers working during Lunar holidays. Retail Sales roared 34.2% m/m higher.
The results led to the major Equity indexes closing with gains. European bourses and S&P futures are also higher as yesterday’s blow-out US Retail Sales data (9.8% m/m), better than expected jobless claims, and soft Treasury yields continue to drive gains.
The US dollar is poised to finish the week down against the G-10 major, despite clawing back some losses overnight. The New Zealand dollar is the best performing currency, and the Canadian dollar is the worst.
EURUSD gains continue to stall below 1.2000. Prices are supported by the narrowing of EU/US interest rate differentials. The US 10-year yield dropped from 1.685% to 1.53% this week, helping EURUSD climb from 1.1877 Monday to 1.1993 yesterday. The Eurozone trade surplus narrowed, and the final reading for March inflation was unchanged at 1.3% y/y. The ECB’s dovish bias is acting as a drag on EURUSD gains. The intraday technicals are bullish above 1.1950.
GBPUSD is struggling to sustain gains above 1.3800. Prices are getting a bit of support from news that the FTSE 100 index is trading above 7,000 for the first time since the start of the pandemic, but traders are cautious due to poor EU/UK trade data. Eurostat reported that EU exports and imports to the UK “dropped significantly” in January and February 2021. GBPUSD is trading near the top of its 1.3718-1.3797 range with a decisive break above 1.3810, targeting 1.3910.
USDJPY climbed from its Asia low of 108.62 to 108.96 as US Treasury yields rose from session lows. Prices continue to be weighed down by mild safe-haven demand for yen from geopolitical tensions and by the prospect of soft Treasury yields for the near term.
AUDUSD dropped from 0.7752 to 0.7726 in a knee-jerk reaction to China GDP data slightly missing the forecast, but those losses were quickly erased. Broad US dollar weakness and positive risk sentiment from higher equity prices is underpinning AUDUSD and NZDUSD.
USDCAD is almost unchanged from where it started the week and is the worst-performing major G-10 currency. Prices broke below the overnight lo2w of 1.2509 in early NY trading and hit 1.2497., in part due to rising crude prices. WTI oil is trading at $63.48/barrel compared to $62.60 yesterday.
Traders may be reluctant to drive prices lower, considering that Ontario is getting hammered by the third-wave COVID-19 outbreak. The province has already enacted a stay at home order and is now considering stricter measures as modeling suggests a risk of 18,000 new cases per day by the end of May. USDCAD direction is dictated by global US sentiment, with domestic data and events only playing a limited role.
US and Canadian housing data are on tap today.
USDCAD is in a downtrend channel bound by 1.2780 on the top and 1.2290 on the bottom, and prices are trading just below the middle (1.2535) of the band. The Intraday technicals are bearish below 1.2530, looking for a break of 1.2440 to extend losses to 1.2410. For today, USDCAD support is at 1.2440 and 1.2410. Resistance is at 1.2530 and 1.2560. Today’s Range 1.2440-1.2520
Chart: USDCAD daily
Source: Saxo Bank
FX open, high, low, and previous close
Source: Saxo Bank