July 11 2022

  • Risk aversion rippling through markets
  • Wall Street will drive FX direction due to empty US data calendar
  • US dollar on solid footing since Thursday’s NY open.

FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3003-07, overnight range 1.2944-1.3022 close 1.2938

USDCAD soared then sank on Friday following the US and Canadian employment reports.

Unfortunately, Rogers Corporation Inc (RCI)’s 11 million clients were unaware. They didn’t have cell or internet service for over 48 hours because Rogers broke the internet.

They didn’t miss much.  After all the employment data drama and the weekend, USDCAD opened on Monday almost exactly where it started Thursday’s session.

USDCAD jumped from 1.2983 to 1.3033, and dropped to 1.2935, which was almost where it finished the day, as traders realized that the Canadian jobs data was misleading.  All the losses were due to a drop in self-employed numbers and mostly part-time. The unemployment rate ticked down to 4.9%, a new record low.

The better than expected US data put a floor under USDCAD and prices climbed steadily overnight, supported by the 10-year Treasury yield (3.07%).

WTI oil prices traded in a $101.16/barrel-$105.15 range since Friday, underpinned by easing US recession fears following the NFP report.  They retreated to the low in NY after the US dollar caught another bid.

The USDCAD focus is on Wednesday’s BoC monetary policy meeting.  A 0.75% rate hike is virtually guaranteed, thanks to hot domestic inflation, and the Fed’s 0.75 bp hike on June 15.  Why not 1.00%? The BoC has warned that rates may rise above the neutral rate (2-3%).

There are no Canadian economic reports today.

USDCAD technical outlook

The intraday USDCAD technicals turned bullish last Tuesday with the break above 1.2950 setting the stage for a retest of resistance in the 1.3080 area.   A break below 1.2930 negates the intraday upward pressure and targets 1.2860.

For Today, USDCAD support is at 1.2970 and 1.2930.  Resistance is at 1.3020 and 1.3070.  Today’s Range 1.2970-1.3050.

Chart: USDCAD quarterly from 1986 to July 2022

Source: Saxo Bank

G-10 FX recap and outlook

The US dollar is strutting its stuff like a contestant on America’s Got Talent. A surprisingly robust nonfarm payrolls report does that.   The US gained 372,000 jobs in June, easily beating the forecast of 268,000. The unemployment rate remained steady at 3.6%

Markets breathed a sigh of relief as the data downgraded recession risks. CIBC Chief Economist Avery Shenfeld noted There can be job-free recoveries for a while, but the very definition of a recession essentially rules out having one without job losses, let alone a recession with a hiring boom.

Wall Street traders were confused. The major stock indexes rose following the employment data, but the DJIA and S&P 500 closed with small losses while the Nasdaq was a tad higher. The Nikkei closed 1.11% higher, helped by news of Liberal Democrat Party (LDP) election win. Australia’s ASX 200 dropped 1.14% partly because diplomats failed to ease China/Australia tensions.

European bourses are giving back some of Friday’s gains, and are in the red. The German Dax is down 0.71%, while the UK FTSE 100 has slipped 0.58%. WTI is 2.60% lower than Friday’s close, while Gold gave up 0.46%.  Wall Street is poised to open in negative territory today.

German’s are breathing a little easier after Canada agreed to ship a turbine to Germany for use in the Nord Stream pipeline, removing one excuse for Russia to stop gas shipments to Germany. The message is that the G-7 will support Ukraine if they aren’t overly inconvenienced.

EURUSD traded in a 1.0077-1.0190 range since Friday with prices flirting with the bottom of the range in early NY. The single currency is weighed down by recession fears exacerbated by the Russia and Ukraine war. The EURUSD technicals are bearish and targeting a break below 1.0000 to extend losses to 0.9800.

GBPUSD is trading with a negative bias in a.1909-1.2053 range since Thursday’s NY close. The currency is suffering from UK political hijinks, a rapidly slowing economy, and rising inflation. Broad-based US dollar demand following Friday’s NFP data also undermines the currency pair. GBPUSD technicals are bearish below 1.2060, with the road wide open to the Covid low of 1.1490.

USDJPY shrugged off the assignation of a former PM and rallied from 135.35 on Friday to 137.62 in NY, a level last seen in 1998. Stubbornly dovish monetary policy and rising US Treasury yields are fueling the rally.

AUDUSD fell to 0.6783 from 0.6872 Friday due to widespread US dollar demand, lower commodity prices, and another failure to improve China/Australia relations. China listed four ways Australia could improve things, and Australia responded with “we don’t respond to demands.”

NZDUSD fell from 0.6191 to 0.6144 due to US dollar strength. The NZ Institute of Economic Research said the RBNZ should raise rates by 0.50% at Wednesday’s meeting.

The US economic calendar is empty.

Chart of the Day:  US dollar index

Source: Saxo Bank

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.6960, previous 6.7098

Shanghai Shenzhen CSI 300 fell 1.67% to 4,354.62

China June CPI 2.5% y/y vs 2.1% in May.

Stocks pressured by renewed Covid lockdown concerns after cases rose in Shanghai and Macau closed all non-essential businesses and casinos.

Chart: USDCNY 1 month

Source: Yahoo Finance