Source: Pixabay      

December 15, 2021

  • Markets jittery ahead of FOMC and new “dot-plot” forecasts
  • US Retail Sales Slump-Canadian inflation rises 4.7%, unchanged from October
  • Canadian dollar continues to underperform vs commodity currencies

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot: Open 1.2874-78, Overnight Range 1.2847-1.2883, Previous close 1.2864

USDCAD resistance in the 1.2860-90 area is crumbling on broad US dollar strength due to fears of a hawkish FOMC outcome, with gains getting an added lift from sliding oil prices.

WTI fell from $72.92/barrel Monday to $69.61/b today after yesterday’s IEA warning suggesting a risk of an oil glut in Q1 2022, due to new travel restrictions imposed to combat the spread of the Omicron. Prices are also weighed ahead of the planned Opec production increase in January.

The Federal governments fall budget update promised the usual sunshine and unicorns outlook. The government plans to raise spending and lower the deficit. Copies are available at all public washrooms, just in time for flu season.

The Federal government is telling Canadians to avoid non-essential travel, and Trudeau is reportedly considering a two-week quarantine for returning travellers. The quarantine period does not apply to the NHL, NBA, elected officials, senior bureaucrats, Olympic athletes, friend of Justin, and a host of other insiders. However, it does apply to YOU!.

The post-FOMC price action will get stupid, however there is a risk that even if the dot plots show an earlier than expected US rate hike, the Omicron virus may be the excuse Powell uses to provide very dovish forward guidance.

Canada inflation rose 4.7% y/y in November, and 0.3% m/m.  Statistics Canada said “Canadians continued to feel the impact of supply chain disruptions in November, which put upward pressure on prices for durable goods, like passenger vehicles and furniture. Prices for foods commonly seen around dinner tables, including vegetables, meat and pasta, have also increased recently compared with 2020.”

USDCAD traded sideways on the news.

BoC Governor Tiff Macklem provides a recap of 2021 in a speech at noon.

Technical view:  The intraday USDCAD technicals are bullish. The uptrend line on the hourly chart is at 1.2800, which is guarded by intraday support at 1.2820.  A break above 1.2890 targets 1.2950 and then resistance in the 1.2980-1.3030 area. A break below 1.2800 negates the short term uptrend, but only a move below 1.2730 suggests a short-term cap is in place.

For today, USDCAD support is at 1.2820 and 1.2770.  Resistance is at 1.2890 and 1.2950.  Today’s Range 1.2830-1.2920

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

US Retail Sales rose 0.3%m/m in November, compared to estimates of an 0.8% increase but disappointment was tempered (slightly) by modest upward revisions to the October data.

FX markets are eagerly awaiting the outcome of today’s FOMC decision. Fed Chair Powell seems to have pre-announced the decision to speed up the tapering program, which should be fully reflected in current exchange rates. It is concerns that the “dot-plot” forecast may show earlier and more rate hikes in 2022 that have US dollar bulls in a lather. That also means the greenback is vulnerable to a sharp correction if Mr Powell opts for dovish guidance due to rising Omicron cases in the US.

Omicron fears are rising. EU President Ursula von der Leyen said, “If you look at the time it takes for new cases to double in number, it seems to be doubling every two or three days. And that’s massive. We’re told that by mid-January, we should expect Omicron to be the new dominant variant in Europe,” von der Leyen told the European Parliament, pointing to scientific data.” She tempered her remarks by noting that the EU can produce 300 million vaccine doses per month and that 66.6% of citizens had two doses.

The major Asia equity indexes closed flat to lower due to Chinese data and caution ahead of the FOMC. European bourses are modestly higher except for the UK FTSE, which has Omicron issues. Wall Street is poised to open unchanged based on current futures prices. Oil prices are down, and gold slipped 0.20%. Gold traders are torn between Omicron risk aversion demand and selling due to rising interest rates.

EURUSD chopped higher, albeit modestly in a 1.1255-1.1276 range. Traders are cautious ahead of the FOMC and Thursday’s ECB meeting. Eurozone data was second-tier. EURUSD technicals are bearish below 1.1320.

GBPUSD climbed from 1.3228 to 1.3282 before settling at 1.3260. Prices are defying gravity as Omicron cases soar and the government considers recalling parliament to discuss additional COVID-19 measures. GBPUSD found support from higher than expected inflation data. November CPI soared 5.1% y/y compared to 4.2% in October while PPI jumped well above estimates. The results fed speculation of a hawkish BoE meeting on Thursday.

USDJPY traded with a modest bid in a 113.64-113.82 range, trapped between fears of higher US interest rates and Omicron fueled risk aversion. The US 10-year yield is 1.45%. Analysts suggest the yield is depressed by year end effects.

AUDUSD and NZDUSD tracked broad US dollar moves and are awaiting the FOMC decision. AUDUSD traders are also awaiting Thursday’s RBA Governor Lowes speech and employment data.

Chart of the Day:  Gold (XAUUSD)

Source: Bureau of Labor Statistics

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3716, Previous 6.3675

Shanghai Shenzhen CSI 300 fell 0.87%% to 5,005.90

November Retail Sales 3.9% y/y vs October 4.9%

FT Reports Chinese biotechnology and other tech stocks may be added to US blacklist

Chart: USDCNY 1 month

Source: Yahoo Finance