May 27, 2022

  • US PCE Price index drops more than expected.
  • US markets closed Monday
  • US dollar continues to slide as risk sentiment improves

FX change at a glance: Friday-Monday NY open

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2733-37, overnight range 1.2734-1.2782, close 1.2771,

USDCAD is trading with a bearish bias due to broad US dollar weakness on the back of improving risk sentiment and steady to firm oil prices.

WTI oil spiked to $114.75 from $110.75 yesterday after US GDP data raised speculation that Fed may not be hiking interest rates as aggressively s previously expected. The rally extend to $114.94 overnight before prices inched down to $113.65 in NY, likely due to profit-taking ahead of the US long weekend.

USDCAD price action tracks S&P 500 moves, falling when the index rises and vice versa. That won’t change today.

The Bank of Canada is expected to raise interest rates by 0.50% at its June 1 meeting. Unfortunately, if the NZDUSD reaction to the RBNZ rate hike can be a guide, rate hike fueled USDCAD losses will be short lived.

USDCAD technical outlook

The intraday USDCAD technicals are bearish following the move below 1.2790, the April 21 uptrend line on a 4 hour chart. Prices are entering into a significant layer of support, stretching from 1.2640 to 1.2740, which should act as a drag on losses. A decisive brake below 1.2640 would extend losses to 1.2500.  A break above 1.2820 shifts the focus to 1.3000.

For today, USDCAD support is at 1.2730 and 1.2680.  Resistance is at 1.2770 and 1.2810.  Today’s Range 1.2720-1.2790

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

All is right with the world, at least as indicated by global stock markets. Wall Street closed on a high note Thursday, and that sentiment permeated overseas markets.

US stocks rallied, supported by Citibank analysts suggesting record month-end stock rebalancing flows. The US Congressional Budget Office (CBO) is bullish on the economy. Wednesday, it predicted the economy would grow 3.1% in 2022, driven by consumer spending, while inflation steadily cools to 2.0% in 2024.

Traders appear to be bored with geopolitical news. Russia and China vetoed US call for additional UN sanctions on North Korea. Russian Foreign Minister Sergey Lavrov warned that it would be an unacceptable escalation if western nations gave Ukraine weapons that could strike Russia. Europe is struggling to secure alternative sources of oil to replace Russian supplies. US Secretary of State Antony Blinken risked riling Beijing when he said China posed “the most serious long-term challenge to the international order.” None of the above suggest traders should be in risk-seeking mode.

Asia equity markets followed Wall Street’s lead and closed higher. Hong Kong’s Hang Seng index rallied 2.89% on improved tech earnings. European bourses are posting gains. The French CAC index is up 0.90%, while the UK’s FTSE 100 has risen 0.29%. Wall Street futures are higher but gold and oil prices gave up earlier gains.

The US PCE Price Index dropped in April, falling from 0.9% m/m in March to 0.2% m/m in April y/y (6.3% y/y vs 6.6% y/y in March).  The results were far better than expected and raised hopes that the Fed will pause raising interest rates in September.

EURUSD traded choppily in a 1.0708-1.0764 ban.  Gains in Asia were reversed in Europe. EURUSD topside may be limited due to recession risks from supply chain disruptions from the Russia/Ukraine war. The Eurozone economic calendar was empty today. The intraday EURUSD technicals are bearish below 1.0770.

GBPUSD consolidated gains from Chancellor Rishi Sunak’s “mini budget,” and traded in a 1.2588-1.2666 range.  Prices are underpinned by broad US dollar selling pressures as global risk sentiment improves Even so, the GBPUSD downtrend from February remains intact while prices are below 1.2750.

USDJPY climbed from 126.69 to 127.19 on improved risk sentiment and some speculation that Fed rate hikes may pause in September. The gains were limited due to the 10-year Treasury yield remaining soft at 2.73%.

AUDUSD gained on the improved risk tone and general US dollar weakness, trading in a 0.7091—0.7152 band.  Traders ignore Australia’s retail sales data, which matched expectations but was below the March result.

US Michigan Consumer Sentiment Index is expected to be unchanged at 59.1.

Monday US markets are closed for Memorial Day.  The US bond market closes early today, which suggests a quiet afternoon session for commodity and FX markets.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7387 Previous 6.6766

Shanghai Shenzhen CSI 300 rose 0.21%% to 4,001.30

Shares rose after Alibaba and Baidu reported higher than expected sales growth

Chart: USDCNY 1 month

Source: Yahoo Finance