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August 23, 2021

  • Eurozone PMI’s dip on COVID-19, but remain at elevated levels
  • US Dollar reverses Friday rally
  • WTI 0il rallies nearly 4.0%

FX Week at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2738-42, Overnight Range 1.2715-1.2831, Previous close 1.2820

USDCAD fully reversed last week’s Thursday-Friday rally. The currency pair broke above 1.2740 resistance and rallied to 1.2820 by Thursday’s close. The rally continued in Asia and prices peaked at 1.2844 just as NY opened Friday.  Profit-taking, a rebound in crude oil prices and steady Canadian Retail Sales data, all contributed to a steady slide to 1.2820 where it ended the week. USDCAD slid anew in Asia today and continued to do so until finding support at 1.2740.

The price action is evidence that it is the “silly season” for FX. There were not any specific catalysts for the USDCAD sell-off, other than a $3.0 jump in oil prices, which was a factor of broad US dollar weakness.  Friday’s Canadian Retail Sales was below the forecast, but 4.2% m/m is a good result.  

The currency pair will remain vulnerable to random moves, determined by risk sentiment swings.

Technical view:  The intraday USDCAD technicals are bullish while prices are above 1.2730, looking for a break above 1.2780 to extend gains to 1.2830.  A break below 1.2730 targets 1.2640. For today, USDCAD support is at 1.2730 and 1.2670. Resistance is at 1.2780 and 1.2810. Today’s range 1.2730-1.2810

Chart USDCAD 4 hour, 2 week

Source: Saxo Bank

G-10 FX recap and outlook

What a difference a weekend makes. Friday’s risk aversion rally was due to fears the spreading COVID-19 delta-variant would derail global growth, geopolitical concerns due to Afghanistan, and a hawkish Fed outlook.

Today, while it is not all sunshine and unicorns, risk sentiment is positive.  Traders now think that the spreading coronavirus will force the Fed to delay tapering, thanks to a comment from Dallas Fed President Robert Kaplan.  The well-known hawk tempered his taper enthusiasm when he suggested that the spread of the delta-variant may mean a delay in reducing monetary stimulus.  News news of a couple of plane-loads of refugees from Afghanistan appeased geopolitical concerns, and at least for this morning, concern about slowing global growth risks is not a thing.

Asia equity indexes closed with decent gain’s led by the 1.78% gain in Japan’s Nikkei225. European bourses are higher and S&P 500 futures point to a solid open on Wall Street.  WTI oil jumped 3..0%, gold prices are firmer and US 10-year Treasury yields climbed to 1.272%.

EURUSD climbed from 1.1694 in Asia to 1.1732 in NY, supported by the positive shift in risk sentiment and by Markit Manufacturing PMI data for the Eurozone and Germany.  The reports were a tad lower than expected but ING economists suggest the results were strong by historical standards and will underpin Q3 growth.  EURUSD needs to break above 1.1750 or risk more 1.1790-1.1850 consolidation.

GBPUSD is at the top of its 1.3617-1.3677 range with prices supported by “risk-on” sentiment.  The weaker than expected UK Manufacturing and Services PMI reports did not hurt the GBPUSD as the results were due to supply constraints, and staff shortages.  GBPUSD has further upside to 1.3750, while prices are above 1.3640.

USDJPY rallied with the rise in Treasury yields and the unwinding of Safe-haven trades.   The intraday technicals are bullish above 109.70, looking for a break of 110.20 to extend gains to 110.60.

AUDUSD and NZDUSD rallied with the broad US dollar retreat. The RBNZ chief economist said the monetary policy stance still hold, and although the spread of the delta variant raises concerns, its not a game changer.

Today’s US data will not be a concern for FX markets and the Canadian economic calendar is empty.

Chart of the Day- WTI oil 30 minutes, 5 days

Source: market

FX open, high, low, previous close

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix, 6.4969 Previous day 6.4984                                

Shanghai Shenzhen CSI 300 rose 1.40% to 4835.88

Chart: USDCNY 1 month

Source: Yahoo Finance