Photo: Energyreviewmena

July 22, 2022

  • Oil drops on talk of reduced demand and higher production.
  • EU data sinks EURUSD
  • US dollar gains overnight, but still down from Thursday’s open

FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2863-67, overnight range 1.2855-1.2896, close 1.2865

USDCAD traded defensively all week and is probing the lows, supported by this week’s S&P 500 index gains, while ignoring sliding crude prices.

WTI oil dropped to $94.75/barrel, Thursday, then chopped about in a $95.04-$97.90/b range and opened in NY near the bottom. Prices slid after Russia reopened the Nord Stream pipeline, Libya renewed production with output above 700,000 barrels/day, and concerns of lower demand from China.

All of the above is likely noise, with thin intraday markets exacerbating price action.  The reality is China is working through its covid issues and Russian oil supplies are lower and not guaranteed. Furthermore, Opec says they are unable to boost production much above current levels.

Canada Retail Sales increased 2.2% in May largely due to higher gasoline prices.  Core Retail Sales (exclude gasoline stations, motor vehicles, and car parts) rose just 0.6%.  StatsCanada expects June Retail Sales to rise just 0.3%.

USDCAD is closely tracking the S&P 500 index.  The index climbed steadily this week so it stands to reason it may give back some of those gains today ahead of the weekend, and next weeks FOMC meeting.

USDCAD technical outlook

The USDCAD intraday technicals are bearish below 1.2905 looking for a move below support in the 1.2840-1.2860 area to test the long term uptrend which comes into play at 1.2580.  A break above 1.2905 targets 1.2990, then 1.3050

For today, USDCAD support is at 1.2840 and 1.2810.  Resistance is at 1.2910 and 1.2940.  Today’s Range 1.2840-1.2910

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Traders are heading into the weekend with a lot on their plates.

The elderly, feeble President of the United States has covid. The virus is not that big a deal for a millennial but for a soon-to-be octogenarian, it could be very serious. So serious that Vice President Kamala Harris is rumoured to be interviewing White House decorators.

Russia is ready to release a hostage-Ukraine grain. It is unknown how big the ransom was, but to hear the politicians talk, it is a humanitarian gesture by Putin to help avert a global food crisis, even as he lines his pockets with a portion of the stolen grain sale proceeds.

EURUSD rallied to 1.0275 yesterday after the ECB hiked rates by 0.50%. It was a surprise move considering President Christine Lagarde and her colleagues had largely pre-announced a 0.25% hike. It just shows that ECB, Fed, and BoC officials are making up monetary policy on the fly.

The ECB unveiled its Transmission Protection Instrument (TPI), which is intended to limit increases in countries borrowing costs.

The rate hike was forgotten after German and EU PMI reports underscored elevated recession risks in the euro area, limiting the scope for higher ECB rates. EURUSD dropped to 1.0130 following the data. The short term EURUSD technicals remain bearish below 1.0230.

GBPUSD is trading in the middle of its 1.1917-1.2002 range. UK July Manufacturing PMI dipped to 52.2 from 52.8 while Services PMI dipped to 53.3 from 54.3. GBPUSD continues to suffer from concerns of a recession and political uncertainty.  GBPUSD technicals are negative while prices are below 1.2040.

USDJPY is trading near is under stress.  Prices dropped from 137.94 in Asia to 136.62 in NY, undermined by the US 10-year yield dropping to 2.818% from 2.904% in Asia..

AUDUSD traded in a 0.6894-0.6946 range with prices recovering overnight losses in NY.  NZDUSD followed AUDUSD higher.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.7522, previous 6.7620

Shanghai Shenzhen CSI 300 rose 0.05% to 4,238.23

Chart: USDCNY 1 month

Source: Bloomberg