June 23, 2023

  • Weak Eurozone PMI data  sours risk sentiment.
  • Japan Finance minister tries to talk down USDJPY.
  • US dollar catches a bid; poised to end week with gains.

Weekly FX at a glance (Friday to Friday)

Source: IFXA Ltd

USDCAD Snapshot: open 1.3196-00, overnight range 1.3145-1.3224, close 1.3150

USDCAD stepped back from the brink and retreated above 1.3200 overnight.  However the rally was not enough to alleviate the negative pressure from the downtrend channel that started three weeks ago.

USDCAD bulls were encouraged by the slide in oil prices and the latest round of risk aversion. However, the longer term USDCAD technicals are bearish, the Bank of Canada is hawkish, and the domestic economy is stronger than policymakers expected.

Oil traders are bullish in the medium term but not at the moment. WTI dropped from $72.62 yesterday to $68.09/b today due to profit-taking triggered by Fed Chair Powell’s warning about one or two rate hikes in the pipeline and due to disappointment over China not announcing a new stimulus program.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish above 1.3160, looking for a break above 1.3230 to extend gains to 1.3270 but while prices are below 1.3270, the rally is merely a correction.

 The downtrend that began  at the beginning of June with the break below 1.3460 is intact while USDCAD is below 1.3270. A break below 1.3140  will extend losses to the 1.2990-1.3000 area.  

The 1.2990-1.3000 area is significant support which stems from the uptrend line from the end of May 2021  as well as “round number” psychological support. It is also the Fibonacci 50% retracement level of the May 2021-October 2022 range.

For today, USDCAD support is at 1.3170 and 1.3140.  Resistance is at 1.3240 and 1.3270

Today’s range 1.3160-1.3260

Chart: USDCAD  4 hour

Source: Saxo Bank

G-10 FX recap and outlook

US dollar bears had a good week heading into Thursday, then a 50-basis-point rate hike by Norway’s Norges Bank and a similar hike by the Bank of England raised recession fears. This sparked a round of profit-taking against the EUR and GBP. The selling intensified overnight and was exacerbated by weaker-than-expected Eurozone PMI data. The US dollar is poised to end the week with gains across the board, except against the Canadian dollar.

What changed?

The somewhat aggressive rate hikes by the BoE and Norges Bank switched the narrative from buying currencies with rising interest rates to avoiding currencies with rising interest rates due to escalating recession risks. However, a US recession is less likely, according to Treasury Secretary Janet Yellen, who cited falling inflation and the resilience of the labor market to justify her view. Fed Chair Powell reiterated his comments about the need for higher interest rates when he testified before the US Senate. Fed Governor Michelle Bowman is another policymaker advocating higher rates.

Eurozone composite PMI at 50.3 (forecast 52.5, previous 52.8) measures both the manufacturing and services sectors, and it is still in positive territory. The Eurozone economy may not be growing, but it isn’t contracting either. However, for traders, the results were as good an excuse as any to book some profits.

Looking ahead

Today will be a “nothing day” for FX traders. The only data is the second-tier S&P Global PMI reports for the US, which takes a back seat to the ISM PMI reports due at the beginning of July. There are speeches from Fed policymakers James Bullard, Loretta Mester, and Raphael Bostic today, which may have some bearing on equity markets.

EURUSD traded sideways in Asia, then plunged from 1.0958 to 1.0845 after the German and Eurozone PMI data and due to the outlook for higher US interest rates. The intraday EURUSD technicals turned bearish with the move below the June uptrend line at 1.0900, which puts 1.0800 in play.

GBPUSD traded in a range of 1.2687-1.2750, and its June uptrend remains intact due to favorable interest rate differentials between the UK and Europe. Prices are also supported by EURGBP selling pressure. UK composite PMI ticked down to 52.8 from 54, but the news was overshadowed by improving consumer confidence (actual -24 vs -27 in May).

USDJPY rallied to 143.44 in Asia, then dropped to 142.78 following comments by Finance Minister Shunichi Suzuki, which implied FX intervention was a possibility.

AUDUSD extended yesterday’s losses and fell from 0.6766 to 0.6687. The losses were fueled by concerns about a more hawkish-than-expected Fed in the face of a dovish RBA

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

Source: Bloomberg

China Snapshot

Closed for Dragon Boat Festival

Bank of China Fix: 7.1795, previous 7.1596

Shanghai Shenzhen closed 3864.03.

Chart: USDCNH 6 month

Source: Bloomberg