Source: Wikimedia

May 10, 2022

  • USDCAD stalls at Fibo 38.2% retracement of pandemic range
  • “Turnaround Tuesday” puts floor under free-falling equities.
  • USD opens higher compared to yesterday but below its best overnight levels.

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3003-07, overnight range 1.2985-1.3035, previous close 1.3014

USDCAD surged yesterday, rising from 1.2900 to 1.3013, then extended the gains to 1.3035 in Asia overnight.

The Loonie was swept up in a wide-spread risk-aversion move sparked by ongoing but escalating recession fears in Europe and UK, supply chain issues from Covid in China, and the Russian Ukraine war, alongside sky-rocketing inflation and central bank rate hikes.

The surging US dollar and geopolitics knocked WTI oil from $111.15 yesterday to $100.48/b overnight. EU plans to ban shipping industry from carrying Russian oil were thwarted by Greece and Malta opposition.  The EU may still have the last laugh if the follow-through and ban insurance on vessels carrying Russian crude. The EU is struggling to get Hungary on board with Russian sanctions. In addition, China’s COVID issues and slowing growth forecasts are weighing on the demand outlook.

The WTI uptrend from the end of January is intact while prices are above $96.90.

USDCAD direction is highly correlated with S&P 500 moves and the S&P 500 is under duress. The ultra-low Fed monetary policy and government stimulus accelerated gains boost the index from 2250 in March 2020 to the 4800 area in January 2022. A 50% correction of that rally suggests prices can fall from 4030 this morning to 3540.

That scenario would be bullish for USDCAD. A decisive break above the 1.3030-50 area would shift the focus to 1.3500.

As Dirty Harry used to say, “Are you felling lucky?” If so risk/reward suggests selling USDCAD in the 1.3000-10 area with a stop/loss at 1.3055, looking for BoC rate hikes, and steady to high oil prices to undermine USDCAD and drive prices to 1.2650.

There are no domestic economic reports today.

USDCAD technical outlook  

The intraday USDCAD technicals are bullish while trading above 1.2970, looking for a break of resistance in the 1.3030-1.3050 area to extend gains to 1.3130.  A break below 1.2970 would extend losses to 1.2910 but only a move below 1.2710 would shift the outlook to 1.2450.

For today, USDCAD support is at 1.2970 and 1.2910.  Resistance is in the 1.3030 area and 1.3080.  Today’s Range 1.2950-1.3030

Chart: USDCAD hourly

Source: Saxo Bank

G-10 FX recap and outlook

Global markets are nursing their wounds but still require treatment.  Profit-taking and bottom fishers managed to lift S&P 500 futures from overnight lows to indicating a positive open on Wall Street.  European bourses are sharply higher, led by a 1.38 gain in the German Dax index.  Gold prices are flat, and oil prices are lower.

The US 10-year yield dropped from 3.18% yesterday to 3.018% today, fueling the equity market rally.

EURUSD is rather tranquil amidst the turmoil in other G-10 currencies.  The single currency traded in a 1.0537-1.0585 range overnight and a 1.0475-1.0640 range since April 28.  That’s probably because upside momentum from rising expectations the ECB will raise rates by 0.25% in June and again in September are offset by recession risks thanks to the Russian invasion of Ukraine.

The German ZEW survey said, “The expectations and assessments of the economic situation continue to point to a deterioration of the German economy during the next six months.”

The intraday EURUSD technicals are bearish below 1.0590.

GBPUSD traded choppily in a 1.2306-1.2375 range.  GBPUSD gains are limited due to the resurgence of Brexit issues stemming from Northern Ireland, alongside soaring inflation and recession risks.  Last week’s dire outlook from the Bank of England also limits gains.  The intraday technicals are bearish below 1.2575.

USDJPY dropped from 131.13 yesterday to 129.80 overnight before climbing to 130.10 in NY trading.  BoJ policymaker Uchida dismissed calls for widening the YCC 10-year cap, saying it would be the same as a rate hike.

AUDUSD continues to suffer from China slowdown woes and weaker commodity prices.  AUDUSD fell to 0.6913 from 0.6986.  The RBA is expected to hike rates in June and then every month until reaching 2.75%.  However, AUDUSD isn’t getting much benefit from the outlook.

There will be plenty of Fed policymakers offering opinions today, including Williams, Waller and Mester.  There are no economic reports.

Chart: CBOE VIX Index-Used to measure the level of risk, fear, or stress in S&P 500

Source: Saxo Bank

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7134   Previous 6.6899

Shanghai Shenzhen CSI 300 rose 1.09 % to 3,919.87

Chart: USDCNY 1 month

Source: Yahoo Finance