Source: Disney news             

June 8, 2022

  • OECD and World Bank slash global growth forecasts
  • USDJPY at 20-year peak-BoJ remains defiantly dovish
  • US dollar mixed

FX change at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2547-51, overnight range 1.2527-1.2557, close 1.2533,

USDCAD continues to gnaw at support in the 1.2530-50 area. Rising oil prices and expectations for aggressive Bank of Canada rate hikes are helping to counter support from higher US Treasury yields.

The Organisation for Economic Cooperation and Development (OECD) expects Canada GDP growth at 3.8% in 2022 (previously 3.885). They said, Canada’s economy has largely recovered from the COVID-19 crisis. Domestic demand is picking up following the easing of containment measures. Exports are expected to strengthen, demand for commodities buoying trade amid shocks to world growth.

WTI oil prices climbed to $121.33/b from $119.33/b with traders ignoring the increase in US crude inventories (1.8 million barrels) last week.

The S&P 500 is still the tail that wags the dog, and the index is attempting to rally this morning, which puts downward pressure on USDCAD.

There are no Canadian economic reports today.

USDCAD technical outlook

The intraday USDCAD technicals are bearish below 1.2610 looking for a break below 1.2430 to extend losses to 1.2490, then 1.2440.  A move above 1.2620 targets the1.2690-1.2710 area, which if decisively broken suggest a period of 1.2530-1.2750 consolidation.

For today, USDCAD support is at 1.2530 and 1.2490. Resistance is at 1.2590 and 1.2620.  Today’s Range 1.2510-1.2590

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Eeyore’s take on today’s markets would go something like, “if it is a good morning, which I doubt.”

That’s because he would be skeptical of Asia stock market gains, concerned about rising interest rates globally, and worried about the impact of $120.00/barrel WTI oil.

Eeyore is not alone.  The Organisation for Economic Cooperation and Development (OECD) joined the World Bank in sharply downgrading its global growth forecasts.  They slashed their 2022 global GDP forecast to 3.0% from 5.5% previously while downgrading 2023 GDP to 2.8% from 3.2%.

They blame Russia and China for the world’s economic woes.  Russia bears the brunt of the responsibility as it exacerbated supply chain disruptions, higher commodity prices, and elevated inflation pressures.

China is also culpable due to its draconian “zero-tolerance” Covid policies.  One would think that the country that gave us the pandemic would be better equipped to manage the fall-out.

Asian equity markets followed Wall Street’s lead and closed with gains.  Japan’s Nikkei 225 index rose 1.04%, supported by yen weakness, while Australia’s ASX climbed 0.36%.  European bourses are trading mixed.  The German Dax and French CAC indexes are modestly lower ahead of tomorrow’s ECB meeting, while the UK FTSE 100 is flat.  Gold and oil prices gained 1.00% and 0.83%, respectively.

The 10-year US Treasury yield is trading at 3.0%, supported by Treasury Secretary Yellen’s forecast that the US is facing a prolonged period of inflation.

EURUSD traders are jumpy.  The single currency slid from 1.0705 at Tuesday’s close to 1.0672 in Europe, then jumped to 1.0722 in NY trading, thanks to stronger than expected economic growth and employment data.  Q1 GDP was 5.4% y/y compared to expectations for 5.1% y/y.  Employment rose 0.6% q/q.

The Eurozone data suggests the economy is more robust than previously expected, and it will be easier for the ECB to raise rates.

GBPUSD was unable to keep yesterday’s gains and it dropped from 1.2596 in Asia to 1.2515 just before NY opened.  UK House prices rose 1.0% in May, as expected but lower than April.  Construction PMI fell to 56.4 from 58.2.  The GBPUSD outlook is negative due to weak data hampering the BoE’s ability to raise interest rates and by bearish technicals below 1.2650.

USDJPY is at a 24-year peak after rising to 133.99 from 132.61 overnight.  Bank of Japan Governor Haruhiko triggered the latest spike in USDJPY when he said, “Japan is absolutely not in a situation that warrants monetary tightening, as the economy is still in the midst of recovering from the pandemic’s impact.” To say that the BoJ is out of step with the rest of the world is an understatement. The proof is EURJPY which has climbed from 124.30 in March to 143.77 overnight.

AUDUSD traded with a negative bias falling from 0.7234 to 0.7172 overnight.  The RBA rate hike on Tuesday has been forgotten and traders are focused on next week’s FOMC meeting.

The US data calendar does not have any top tier data.

Chart of the Day EURJPY

Chart: Saxo Bank

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

China Snapshot

Today’s Bank of China Fix 6.6576, Previous 6.6649

Shanghai Shenzhen CSI 300 rose 0.97% to 4,219.81, Previous close 4,179.13

Stock markets climbed following news that authorities approved 60 new game licences, which traders viewed as a sign the ham-fisted tech crackdown was easing.

Chart: USDCNY 1 month

Source: Yahoo Finance