January 24, 2022

  • US ordering families of embassy staff out of Ukraine
  • Risk off roiling equity markets
  • US dollar and Japanese yen open higher, Commodity currencies underperform

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot: Open 1.2603-07, Overnight Range-1.2557-1.2641, previous close 1.2581

USDCAD bulls took control Friday and are still in the driver’s seat today as risk sentiment soured over Russia and Ukraine tensions. Traders ignored steady to firm WTI oil prices which remained underpinned by reports of new missile attacks in the UAE, and ongoing hopes for increased demand as risks from Omicron fade.

Traders also ignored risks that the Bank of Canada raises interest rates by 0.25% on Wednesday, apparently distracted by fears of a hawkish FOMC meeting.

Instead, USDCAD tracked S&P 500 weakness which continued in early NY today, boosting USDCAD to 1.2641.Technical view:  The intraday USDCAD technicals are bullish above 1.2560, looking for a break above 1.2630 to extend gains to 1.2680, then 1.2730.  The longer term technicals are bearish while prices are below 1.2830, the June 2021 downtrend.

For today, USDCAD support is at 1.2580 and 1.2560.  Resistance is at 1.2650 and 1.2690.  Today’s Range 1.2580-1.2660

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Equity traders have reacted as if the Doomsday Clock struck 12.00.  Fears of aggressive and faster-paced Fed rate hikes drove Wall Street lower last week as commentators speculated that the “bubble had burst.”

Sentiment worsened on the weekend as US and Russia tensions escalated.  There are reports the UK and US governments ordered families of embassy workers to leave Ukraine  The EU didn’t follow suit, perhaps because they do not want to give Russia any more reason to disrupt energy supplies.  NATO is adding more ships and aircraft to the mix in eastern Europe.  China is taking advantage of the west’s distraction with Russia to step up intimidation of Taiwan.  Xi Jinping sent fighter and electronic warfare jets buzzing around Taiwan.

Asia equity indexes closed mixed with the Nikkei gaining 0.24%, while Australia’s ASX 200 lost 0.51%.  European bourses are deep underwater, with Germany’s DAX and the French CAC down 1.8%.  S&P 500 futures are down over 1.0%,  pointing to another negative open on Wall Street.  Oil prices and the 10-year US Treasury yield are lower.

Gold broke above resistance in the $1830.00 last week and extended gains overnight.  Escalating geopolitical tensions in Ukraine and the Middle East overshadow rate hike fears, underpinning prices.

Wednesday’s Fed meeting is the main event, and FX markets will be whippy until the FOMC statement and Fed Chair Powell’s press conference.  Analysts expect a hawkish result leaving markets exposed to a “sell the rumour, buy the fact reaction. 

EURUSD traded defensively in a 1.1297-1.1344 range with the low seen in early NY trading as S&P 500 futures dropped further.  Eurozone PMI data remained above 50 with Manufacturing PMI (actual 59 vs forecast 57.5), suggesting supply chain issues are easing.  However, fear of the Fed and bearish intraday technicals below 1.1370 continued to weigh on prices.

GBPUSD traded sideways in Asia, then dropped from 1.3564 to 1.3493 in NY as weak data and risk aversion fueled selling.  UK Manufacturing and Services PMI were lower than expected due to Omicron and traders are cautious ahead of the FOMC.  A break below 1.3480 targets 1.3360.

USDJPY is trading in the middle of its 113.48-113.97 range.  USDJPY has a negative bias below 114.50, weighed down by softer US Treasury yields, and safe-haven demand for yen.

AUDUSD and NZDUSD retreated due to negative risk sentiment.  AUDUSD saw added selling pressure from weaker than expected PMI data, but those losses may be recovered if Tuesday’s CPI result is higher than the forecast 1.0.q/q.

There aren’t any top-tier US and Canadian economic data on tap today.

Chart of the Day:  Gold (XAUUSD)

Source: Saxo Bank

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3411, previous 6.3492

Shanghai Shenzhen CSI 300 rose 0.16% to 4,786.74

China lifts lockdown in city of Xi’an

Chart:  USDCNY 1 month

Source: Yahoo Finance