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June 17, 2022

  • Quadruple witching hour may elevate market volatility this morning
  • BoJ goes against the grain-leaves monetary policy unchanged
  • US dollar retreats vs majors, CAD underperforms

FX change at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2967-71, overnight range 1.2941-1.3005, close 1.2948

USDCAD is probing major resistance on the back of broad-based US dollar demand against the major G-10 currencies. Domestic data doesn’t count and hawkish comments by Bank of Canada officials are quickly forgotten.

Global markets only have eyes for the America, specifically bond and equity traders reactions to the US inflation outlook. Fed Chair Powell may have more to say about inflation this morning.

USDCAD traders have largely ignored the slide in the 10-year US Treasury yield from 3.47% yesterday to 3.21% today, mostly because S&P 500 closed with a 3.25% loss. If the S&P 500 rallies today (futures have gained 0.89%, indicating a positive open) USDCAD should retreat. If not, look for a test of 1.3050.

Canada’s May inflation is expected to have jumped to 7.5% y/y from April 6.8% (released next Wednesday). The BoC is expected to hike rates by 0.75%, but it wouldn’t be a stretch for Tiff Macklem to hike by a full percentage, in a demonstration of his commitment to fighting inflation.

WTI oil prices slid to a low of $116.33/barrel overnight, which also underpinned USDCAD. Oil is under pressure from US recession talk. However, even if the US goes into recession, it is highly unlikely that oil demand will slow enough to offset losses from Russian production, assuming the sanctions are effective.

Canada Industrial Product and Raw Material Price Indexes were higher than expected rising 1.7% m/m and 2.5% respectively.

USDCAD technical outlook

The intraday USDCAD technicals are bullish with steep the uptrend line from June 9 intact while prices are above 1.2920 (hourly chart). There is significant resistance in the 1.3000 area stemming from previous tops and bottom, but it would take a decisive breach above the 1.3050 area to suggest a new leg of the June 2021uptrend has started.

For today, USDCAD support is at 1.2920 and 1.2860. Resistance is at 1.3010 and 1.3030.  Today’s Range 1.2920-1.3010

Chart: USDCAD weekly

Source: Saxo Bank

G-10 FX recap and outlook

Markets are digesting the latest round of rate hikes (and non-rate hikes), equity market volatility, and a rash of recession speculation.

Fed Chair Powell delivered the opening remarks at the Inaugural Conference on the International Roles of the US Dollar. He said “The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value. To that end, my colleagues and I are acutely focused on returning inflation to our 2 percent objective.” The speech is not really a factor for FX markets.

The European Commission flipped Putin the bird this morning when they recommended Ukraine, Moldova, and Georgia be granted EU Candidate status. As with most things EU related, at this stage, it is just hot air.

European equity markets are in the green across the board but off their best levels. The German Dax index is 1.25% higher, while DJIA and SP500 futures point to a positive open on Wall Street. WTI oil prices are higher while gold slumped. The 10-year US Treasury yield is steady at 3.21%.

EURUSD ranged in a 1.0477-1.0559 band with prices sliding to the low after the EU invitation to Ukraine. The move may escalate tensions with Putin. Eurozone inflation reading for May was confirmed at 8.1% y/y. EURUSD technicals are bearish in a 1.0400-1.0600 range.

GBPUSD consolidated gains from the Bank of England rate hike but is trading defensively. The US inflation outlook and talk of a recession is overshadowing BoE warnings of 11% by October.

USDJPY rallied from 132.19 to 134.91 following another dovish Bank of Japan monetary policy meeting. The BoJ left interest rates and its yield curve control policies unchanged. Governor Kuroda insisted that the YCC policy could not be adjusted as it would undermine the effect of monetary easing.

AUDUSD traded in 0.6974-0.7050 range, weighed down by softer commodity prices. NZDUSD consolidated Thursday’s rally in supported by NZ Business PMI index which rose 52.9 compared to 51.2 in April.

US Industrial Production and US Capacity Utilization data are ahead

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.6923, Previous 6.7099

Shanghai Shenzhen CSI 300 rose 1.39% to 4,309.04, Previous close 4,250.06

Chart: USDCNY 1 month

Source: Yahoo Finance