Source: asianinvestor

October 27, 2022

  • ECB hikes 75 bps
  • US data boosts stock futures
  • US dollar opens mixed from Wednesday, CAD underperforms

FX at a glance: 

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3601-04, overnight range 1.3541-1.3625 close 1.3556

USDCAD is trading with a bullish bias after a choppy overnight session

Yesterday, USDCAD predictably spiked higher after the BoC surprised markets and hiked rates 50 bps rather than the 75 bps most expected. USDCAD jumped from 1.3545 to 1.3650 then retraced the entire move just as quickly.

The BoC justified its lower-than-expected rate hike suggesting the current level necessitates a fine balancing act. Mr Macklem said in the MPR press conference, “We are trying to balance the risks on both sides. We don’t want to under-tighten because Canadians will have to continue to cope with high inflation. We’re also very conscious that the economy will slow more than needed and we’ll undershoot our inflation target, and we don’t want to do that either.”

The Bank also warned there would be further rate hikes.

USDCAD traders quickly shifted their attention south of the border. The debate around a Fed pivot continues but the no-pivot side is gaining traction as evident by the overnight dip in S&P 500 futures and the rise in the US 10-year Treasury yield from 4.01% to 4.06%.

Expectations that the Fed will hike rates 75bps November 2, which will limit USDCAD downside.

WTI oil prices shrugged off the EIA news that US crude inventories rose 2.55 million barrels, more than expected. The recent US dollar weakness led to WTI prices consolidating yesterdays gains in a $87.36-$88.90/b range.

The Canadian economic calendar is empty.

USDCAD Technical outlook

The intraday USDCAD technicals are modestly bullish above 1.3540 and looking for a break above 1.3630 to extend gains to 1.3670.

 A break below 1.3540 sets up a retest of strong support in the 1.3490-1.3500 area. A decisive move above 1.3690 suggests further gains to 1.3800.

For today, USDCAD support is at 1.3540 and 1.3510.  Resistance is at 1.3630 and 1.3670.  Today’s range 1.3560-1.3660.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Traders were cautious overnight, patiently awaiting the results of today’s ECB meeting and Christine Lagarde’s press conference.

Asia equity markets closed on a mixed note with the Nikkei 225 losing 0.32% and the Australian ASX 200. gaining 0.50%. European bourses opened defensively and only the UK FTSE 100 is above water. S&P 500 futures are unchanged while gold prices slipped.

The US economy grew more than expected in Q3, rising 2.6% y/y compared to expectations for a 2.4% increase. Initial jobless claims were better than expected but slightly higher than last weeks result. US Durable Goods Orders, rose 0.4% in September compared to 0.2% in August. The results suggest there is no urgency for a Fed pivot.

EURUSD chopped around in a 0.9986-1.0093 range overnight and immediately after the ECB announced a 75-bps hike and promised further hikes in the future. The ECB also announced it was tweaking the terms of its Targeted Long Term Refinancing operations (TLTRO). A decisive break above 1.0050 targets 1.0180.

GBPUSD in a 1.1551-1.1645 range. GBPUSD tested the downtrend resistance line at 1.1650 and it held. Prices are vulnerable to concerns the BoE may err on the dovish side at the November 3 meeting.

USDJPY traded negatively in Asia, falling from 146.40 to 145.12, then rallied to 146.47 in NY. There are reports that the government is considering another JPY 29 trillion (about $200 billion) in stimulus spending. Prices continue to be supported by higher US Treasury yields while BoJ intervention fears limit gains.

AUDUSD rallied in Asia rising from 0.6476 to 0.6521 after some analysts upgraded RBA rate hike forecasts to 50 bps from 25 bps. The change was due higher than expected Australian CPI, the rally didn’t last, and prices dropped to session lows in NY.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 7.1570, previous 7.1638

Shanghai Shenzhen CSI 300 fell 0.70% to 3631.14

Chart: USDCNY 1 month

Source: Saxo Bank