Market Commentary & News

Is Powell telling Fish Tales?

by Michael O Neill

December 4, 2023

Image by DALL-E

December 4, 2023

Gold hits a new high in Asia ($2148.78) then retreats.
Powell’s comments deemed to be dovish and roil markets.
US dollar clawing back some of Friday’s losses.

FX at a glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3542-46, overnight range 1.3480-1.3556, close 1.3498

USDCAD fell fast and furiously on Friday, falling from 1.3576 to 1.3487, and then consolidated the losses overnight. USDCAD saw some downward pressure after the November Labour Force Survey data. The 24,900 new jobs was better than expected but the details were rather dubious and hardly a reason to buy Canadian dollars.

The USDCAD decline was mostly due to the market reaction to Powell’s speech in Atlanta. The Fed Chair’s speech was hawkish but interspersed with enough adjectives and qualifiers to suggest even Mr Powell didn’t believe what he was saying.

OPEC and friends are not seeing the love after announcing additional production cuts. Traders fear that the European market is over-supplied due to weak demand and higher shipments from the US. WTI traded in a $72.88-$75.03/b range.

The Bank of Canada meeting is a statement only meeting on Wednesday but Deputy Governor Toni Gravelle will expand on the decision on Thursday.

USDCAD Technicals:

The intraday USDCAD technicals (1 -hour chart) suggest the Friday downtrend was broken with the rally above 1.3520 overnight with a break above 1.3560 targeting 1.3620.

Longer term, USDCAD kicked off a bearish downtrend with the break below 1.3770 on November 14. The ensuing downtrend channel on a 4-hour chart, guided prices lower and remains intact between 1.3450 and 1.3590. A break above 1.3590 suggests further gains to 1.3660 while a move below 1.3450 targets 1.3360.

For today, USDCAD support at 1.3480 and 1.3440. Resistance is at 1.3580-1.3610. Today’s range 1.3490-1.3560.

Chart: USDCAD 4 hour

Source: Investing.com

G-10 FX recap
Fed Chair Jerome Powell delivered what he may have thought were hawkishly biased remarks in a speech on Friday. Traders agreed initially but quickly had a change of heart after analysts dissected the text. This particular passage at first glance sounds hawkish. Powell said, “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance or to speculate on when policy might ease.” Analysts parsed the sentence and determined that the use of “prepared” rather than a more decisive word, and “if it becomes appropriate,” is Fed-speak for “Yup, we are done hiking rates!”

The US dollar tanked, equities soared, and Gold made a new record high of $2148.78 and Bitcoin prices. The US 10-year yield tumbled from 4.34% to 4.195%. Asian markets failed to keep Friday’s momentum going while European bourses are mixed. The US dollar inched higher into the US open while Gold prices retreated to $2070.00. S&P 500 futures are down 0.32%./

Meanwhile, Hamas has resumed its attacks on Israel, and Iran-backed Yemeni Houthi rebels launched drone attacks on Red Sea ships including the USS Carney. China is embracing its inner Hamas and is outraged, claiming America “seriously violated China’s sovereignty and security,” after a US warship sailed in the South China Sea approximately 1,200 km from mainland China. The United Nations Convention on the Law of the Sea (UNCLOS) says that international waters begin 22.2 km (12 nautical miles) from a country’s coastline.

EURUSD dropped from 1.0913 to 1.0829 in the wake of Powell’s speech on Friday, then consolidated the losses in a 1.0850-1.0895 overnight. EURUSD got a bit of support after Sentix Economic Index data noted that expectations for the eurozone rose for the third time in a row. Bundesbank President and ECB Governing Council member Joachim Nagel said that “we have not yet won the fight against inflation,” then cautioned that another escalation of geopolitical tensions would imply higher inflation. His remarks contradict Bank of France Governor Francois Villeroy’s comments from Friday. Mr. Villeroy claimed that the ECB tightening cycle was over and would consider rate cuts in 2024.

GBPUSD churned in a 1.2656-1.2725 range. GBP is garnering a bit of support against EUR due to expectations that the ECB will cut interest rates far earlier than the Bank of England. There is not much UK data this week, leaving price direction at the mercy of US dollar sentiment.

USDJPY dropped from 148.27 on Friday to 146.23 today as traders bail on long USDJPY positions in anticipation of the first Fed rate cut on May 1.

AUDUSD is in the middle of its 0.6634-0.6691 range. The RBA is widely expected to leave rates unchanged at 4.35% tomorrow but deliver a hawkish statement.

US factory orders are expected to have dropped 2.6% in October compared to a gain of 2.8% in September.

Chart of the Day-Gold (XAUUSD)