July 4, 2024
- Traders lift odds of Fed rate cut in September to 66.5%
- Powell comments trump FOMC minutes.
- US dollar licking its wounds and opens soft.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.3627, overnight range 1.3620-1.3643, previous close 1.3640
USDCAD dropped sharply on the back of broad US dollar selling pressure following a slew of soft US economic reports. The surprisingly soft ISM services PMI, which fell 5 points to 48.8, followed on the heels of weaker-than-expected ADP employment data and higher-than-expected jobless claims. In addition, Canada’s merchandise trade deficit widened to $1.9 billion from $1.3 billion in April, which suggests domestic growth in Q2 will be weak.
USDCAD is also weighed down by sharply narrowing CAD/US 10-year bond spreads, which have narrowed from -92.9 on July 1 to -76.3 today.
WTI oil traded choppily in a 81.75-84.38 range since Monday, and prices stayed inside that band overnight. The narrative about rising US demand due to the summer driving season got a bit of a boost after the EIA reported US crude inventories fell by 12.15 million barrels last week. Canadians do not get a break on gas prices during Canada’s summer driving season as, after layer upon layer of federal and provincial taxes, including the carbon tax, drivers pay about 0.43 cents/liter more than Americans. Lucky us! Saving the planet, one taxpayer at a time.
US markets are closed.
USDCAD Technicals
The intraday technicals are bearish while trading below 1.3650 and setting the stage for a test of the support cluster in the 1.3590-1.3620 zone. Yesterday, support at 1.3640 gave way and USDCAD gapped down to 1.3617. The gap at 1.3640 will be filled.
The daily chart highlights a cluster of support in the 1.3590-1.3620 area. The 100-day moving average is at 1.3630 and the 200 day moving average is at 1.3590. The 38.3% Fibonacci retracement of the 2024 range is at 1.3592 while the uptrend line from the beginning of January sits at 1.3600. A decisive move through this cluster zone targets 1.3515, the 50% Fibonacci retracement area.
For today USDCAD support is at 1.3620 and 1.3580. Resistance is at 1.3650 and 1.3690. Today’s range is 1.3580-1.3660
Chart: USDCAD daily
Source: DailyFX
“Hey Joe, Where You Going to Run to Now?”
President Biden was a geriatric when Jimi Hendrix released “Hey Joe” as the first single with the Jimi Hendrix Experience. Who knew that Democrats, most Americans, and the rest of the world would be singing those same lyrics to a sitting President. Yesterday, the NY Times reported Mr. Biden was discussing dropping out of the race with a key ally. The White House denied the story. Mr. Biden insists that he is not suffering from any version of dementia or that his cognitive powers have been diminished after claiming America had a thousand trillionaires during the debate. He then went on and had a total brain freeze when talking about Medicare.
FOMC Minutes Claim Fed is Data Dependent
A data-dependent Fed should not be news to anyone—how else can monetary decisions be made and justified? Policymakers appeared to have a hawkish bias after “Several participants observed that, were inflation to persist at an elevated level or to increase further, the target range for the federal funds rate might need to be raised.” However, Fed Chair Jerome Powell countered that statement this week when he opened the door to a September rate cut. Traders bought what he was selling and raised the odds of a September rate cut to 66.5%.
Equities Climb
Asian equity indexes closed with gains across the board led by a 1.19% rise in Australia’s ASX 200. Japan’s TOPIX index rose 0.92% as traders bought into the idea of earlier than expected Fed rate cuts. European traders ignored French and UK elections and lifted stocks, led by a 0.75% gain in the French CAC-40 and a 0.72% rise in the UK FTSE 100 index. Gold prices rallied. XAUUSD has climbed from $2296.94 on June 27 to $2358.48 today.
EURUSD
EURUSD extended yesterday’s gains and traded quietly in a 1.0783-1.0804 range despite weaker-than-expected German Factory orders data (actual -1.6% m/m vs. forecast 0.5%). The US holiday and uncertainty around round 2 of the French elections on Sunday sidelined many traders. The odds of a hung parliament in France have increased, which ING economists suggest is a negative for EURUSD.
GBPUSD
GBPUSD traded in a 1.2741-1.2764 range. Today is Independence Day in the UK, the day voters declare their independence from 14 years of Conservative party rule. The Labour Party, led by Keir Starmer, is expected to annihilate the Conservatives and win 431 of the 650 seats in the House of Commons. The result is fully priced into markets, leaving the outlook for US interest rates to drive direction.
USDJPY
USDJPY rallied to 161.71 despite a weaker US dollar vs. the rest of the G-10 majors before dropping back to 161.06 this morning. Traders are concerned that the Bank of Japan could take advantage of thin markets, due to the US holiday, to intervene.
AUDUSD and NZDUSD
AUDUSD traded higher, rising from 0.6703 to 0.6730 due to improved risk sentiment on speculation that the Fed may cut interest rates as soon as September. Traders ignored news that Australia’s trade surplus narrowed to $5.77 billion from $6.67 billion in May. NZDUSD traded in a 0.6101-0.6122 range with price action mirroring that of the Aussie.
USDMXN
USDMXN dropped to 18.1050 from 18.1983 due to the prospect of lower US rates sooner than expected and from hawkish comments from Banxico Deputy Governor Jonathan Heath. He said he was in no rush to cut interest rates and preferred to await further evidence of benign inflation.
Bitcoin (BTCUSD)
BTCUSD is near the bottom of its 57,053-60,809 range due to ongoing concerns of selling pressure from Mt. Gox bankruptcy distributions and bearish technicals after the breach of support in the 60,000 zone.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1305 vs exp. 7.2656 (prev. 7.1312).
Sanghai Shenzhen CSI 300 fell 0.51% to 3445.81
Xi Jinping met with Russia’s Vladimir Putin. Russia supports China’s claims for the South China Sea while Jinping supports Russia’s war in Ukraine.
Chart: USDCNY and USDCNH
Source: Investing.com
