Source:  Pixabay

February 7, 2022

  • More EURUSD gymnastics from today’s ECB Lagarde speech?
  • US CPI due Thursday-Forecast 7.3%
  • Surging Treasury yields underpin US dollar

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot: Open 1.2733-37, Overnight Range-1.2704-1.2755, previous close 1.2765

USDCAD reputation as a petrocurrency is as badly battered as Ottawa thanks to the trucker protest.

Canada’s capital city declared a state of emergency due to a massive truck convoy snarling traffic and disrupting residents. The truckers are protesting pretty much everything to do with the vaccine policies and the Trudeau government.

WTI oil prices are well-entrenched above $90.00/b and spent the overnight session consolidating in a $90.76-$92.69/b range, after touching $93.03 Friday. The gains continue to be supported by the mix of geopolitical tensions and talk that Opec is unable to increase supply fast enough to match demand. Saudi Arabia took advantage of the situation and boosted prices for crude beginning in March.

Canadian bureaucrats, academics, and others (public sector pay is never interrupted) encouraged politicians to re-impose draconian restrictions in January to combat the Omicron outbreak. That move cost 200,000 Canadian jobs. US officials, faced with an even worse Omicron outbreak did nothing, and gained 467,000 jobs.

None of that mattered to USDCAD traders. They only had eyes for the ever increasing US 10-year bond yield, which closed at 1.916% Friday, and is trading at 1.923%. The better than expected US NFP data gave rise to speculation that the Fed is behind the curve and may have to hike rates more aggressively.

Even so, the BoC is also priming the rate hike pump and if oil prices remain at current levels, USDCAD gains are limited.

Technical view:  The hourly USDCAD technicals bearish below 1.2750, looking for a test of the January 20 uptrend line which is at 1.2680.  A decisive breach of 1.2680 then 1.2640 suggests the October lows in the area of 1.2305 will be revisited. A break of 1.2810 puts 1.3010 in play.

For today, USDCAD support is at 1.2680 and 1.2640.  Resistance is at 1.2750 and 1.2790.  Today’s Range 1.2680-1.2750

Chart USDCAD daily-4 hour

Source: Saxo Bank

G-10 FX recap and outlook

China returned from a week-long break with weaker than expected Caixin Services PMI (actual 51.4 vs December 53.1), reminding traders that the economy is slowing.

It is a slow start to the week due to a dearth of actionable economic data, equities, and the outlook for US rates to provide FX direction.

EURUSD bounced between 1.1416 and 1.1468 overnight, and the currency pair is in the middle of that band in NY trading. ECB President Christine Lagarde addresses the European parliament, and traders are hoping she will embellish last Thursday’s hawkish policy shift. Dutch Central Bank President and ECB policymaker Klaas Knot, a noted hawk, said he expects a fourth-quarter rate hike. EURUSD technicals are bullish above 1.1380, looking for a break above 1.1500 to target 1.1600.

GBPUSD bounced in 1.3492-1.3550 range. It is underperforming compared to the Euro due to UK political problems and because the Bank of England rate hikes are reflected in the rate. EURGBP demand limits GBPUSD gains, and UK housing price data was ignored.

USDJPY traded in a 114.93-115.37 range, supported by rising US Treasury yields. Japanese authorities are planning to extend COVID-19 restrictions in Tokyo.

AUDUSD and NZDUSD tracked broad US dollar moves and both currency pairs are approaching their overnight peak. AUDUSD saw additional support from a higher than expected inflation report.

The US and Canadian economic calendars are empty.

Chart of the Day: US 10 year Treasury Yield

Source: Koyfin

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3580, previous 6.3746-Closed

Shanghai Shenzhen CSI 300 rose 1.54% to 4634.09

Caixin January Services PMI 51.4 vs December 53.1

Citibank says Chinese New Year celebrations did not lead to a pickup in travel and tourism. The forecast that the PBoC will cut the Medium Term Lending (MLF) rate by 0.10 points at the February 18 policy meeting.

Chart:  USDCNY one month

Source: Saxo Bank