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January 4, 2024

  • FOMC minutes give greenback a boost.
  • ADP Employment surprises to the upside.
  • US dollar opens mixed from yesterday-GBP outperforms.

FX at a glance

Source: IFXA

USDCAD Snapshot: open 1.3321-25,  overnight range 1.3317-1.3361, close 1.3354.

USDCAD is being bounced around by shifting US interest rate sentiment. The FOMC minutes warned that US rates may remain restrictive for longer than expected, which spurred widespread US dollar demand. In addition, steady CAD/US 10-year yield spreads continue to favour USDCAD. USDCAD drifted higher and is currently trading at 1.3355, following today’s US ADP and jobless claims reports.

Oil prices are not doing much for the currency pair.  WTI traded in a $72.91/b-$74.0 range overnight, supported by the 7.41M barrel drop in US crude inventories.  However, the rising hostilities in the Middle East have not translated into higher prices which has prompted Opec to convene on February 1.

There is no Canadian data today.

USDCAD Technicals:

The intraday USDCAD technicals are short term bullish, but longer term bearish, inside a 1.3290-1.3440 range on a daily chart. The RSI momentum indicator is neutral.

The intraday USDCAD technicals are bullish above1.3305, looking for a break above 1.3370 to extend gains to 1.3440. A move below 1.3305 targets 1.3230.

For today, USDCAD support is at 1.3305 and 1.3280. Resistance is at 1.3380 and 1.3410. Today’s range 1.3310-1.3380.

Chart: USDCAD  daily

Source: Daily FX

G-10 FX recap

The release of the FOMC minutes from the December 13 meeting evoked memories of former Fed Chair Alan Greenspan’s “irrational exuberance” comment on December 5, 1996. Mr. Greenspan was referring to inflated asset prices fueled by investor enthusiasm rather than fundamental economic factors. The same can be said about those expecting the Fed to slash interest rates by 150 basis points this year. However, the minutes suggest otherwise. They indicate that while rates may have peaked, heightened uncertainty may keep them in restrictive territory longer than the market expects.

Yesterday’s ISM Manufacturing and JOLTS job openings data showed that the economy was slowing, but they also boosted the Atlanta Fed’s GDP Now index to 2.5% from 2.0%.

Today’s US ADP employment and weekly jobless claims data provided further evidence that the US economy continues to hum. ADP employment rose by 164,000 (forecast 115,000, November 101,000) while weekly jobless claims plunged 18,000 to 202,000. The initial reaction saw a bump in the US dollar a dip in S&P 500 futures, and the US 10 year yield inch up to 3.99%.

EURUSD traded with a bit of a bid in a 1.0915-1.0972 range following better-than-expected Composite and Services PMI data (HCOB Eurozone Composite PMI Output Index at 47.6 vs. Nov: 47.6, Services PMI Index at 48.8 vs. Nov: 48). However, the gains do not seem warranted if you believe the Chief Economist at Hamburg Bank. He said, “It’s not quite recession territory yet for services, but the vibe is far from growth-oriented. There are a lack of clear signals indicating an imminent return to robust expansion.” The intraday EURUSD technicals are bullish above 1.0910, looking for a break of 1.0980 to extend gains to 1.1060.

GBPUSD caught a bid after UK Services PMI data and climbed from 1.2657 to 1.2730. December Services PMI rose to 53.4 from 52.7 previously, prompting S&P global economists to write, “December data indicated that the UK service sector ended last year on a high.” GBPUSD gains may be limited after data from the BoE “Decision Maker Panel” suggests that interest rates will need to be cut due to falling inflation. The intraday GBPUSD technicals suggest a retest of 1.2630 while prices are below 1.2780.

USDJPY traders returned from an extended break and helped rally the pair from 142.86 to 144.25. The somewhat hawkish bias of the FOMC minutes played a role, as risk sentiment soured. Services PMI dropped to 47.1 from 47.6 in November. Judo Bank economists wrote, “Japan’s manufacturing economy experienced a steeper downturn during December as market uncertainty weighed on new orders.”

AUDUSD wandered aimlessly in a 0.6732-0.6761 range. The currency was unable to gain traction due to a weaker domestic stock market and softer commodity prices. Weaker-than-expected Judo Bank Services PMI didn’t help. Judo Bank economists wrote, “Economic activity across Australia has continued to ease through December, with the key activity indexes residing below 50.0.”

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: today 7.0997,expected 7.1504 previous 7.1002.

Shanghai Shenzhen CSI 300 fell 0.93% to 3347.05.

Caixin December Services PMI 59.9 (forecast 51.6, November 51.5). Caixin Senior Economist Wang Zhe wrote: “The gauge remained in expansion throughout the entire year, signaling a sustained recovery in the services sector.”

Chart: USDCNY and USDCNH 4-hour

Source: Investing.com