Source:  Pixabay

January 26, 2022

  • BoC at bat, FOMC on deck
  • European equities, Wall Street futures trading higher
  • US dollar retreats as safe-haven flows unwind

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot: Open 1.2662-66, Overnight Range-1.2562-1.2629, previous close 1.2632

USDCAD dropped as global risk sentiment improved and in anticipation that the Bank of Canada hikes interest rates today.  It is a close call, but 4.8% y/y inflation, strong employment gains, shrinking capacity, and an upbeat Business Outlook Survey tip the scales for a hike today.  On the other hand, many people believe Tiff Macklem is not a guy who rocks the boat and may prefer to follow the Fed’s lead.

USDCAD is also weighed down by rebounding oil prices and the API report showing US crude inventories fell by 873,000 barrels last week.

Technical view:  The USDCAD technicals are mixed.  The intraday technicals are bearish below 1.2630, looking for a break below 1.2550.  Longer term, the downtrend from December comes into play at 1.2700 while the June 2021 uptrend provides support at 1.2450, leaving plenty of travel room between those levels.

For today, USDCAD support is at 1.2550 and 1.2490.  Resistance is at 1.2630 and 1.2690.  Today’s Range 1.2490-1.2590

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Equity market panic has given way to caution ahead to an expected hawkish FOMC meeting outcome, which analysts suggest is reflected in prices.  They expect Fed Chair Powell to confirm a March rate hike but dismiss the notion of a 0.50% move.  However, with US inflation hitting 7.0% in December, a few analysts believe the Fed could surprise markets and hike today.

The Biden administration is in a lather over Putin’s intentions for Ukraine, suggesting an invasion is imminent.  Ukraine leaders disagree and say, “keep calm and carry on.”  British WWll vets said, “Hey, that’s our slogan.”

EURUSD is at the bottom of its overnight 1.1273-1.1310 range.  Comments by ECB policymaker Gediminas Simkus helped eroded support when he said European, and US economic situations are very different so that monetary policies cannot be compared.  He added that Russia/Ukraine tensions are a bigger cause for uncertainty than Omicron.  The intraday technicals are bearish below 1.1320, looking for a break below 1.1250.

GBPUSD is steady in a 1.3495-1.3522 range, with traders awaiting the FOMC decision.  However, ongoing UK political concerns ahead of the Sue Gray report on government parties during COVID.  Others suggest the political drama is just noise and should be ignored.

USDJPY inched higher, rising from 113.79 to 114.29, tracking the US 10-year Treasury yield rise to 1.787%, and in anticipation of a hawkish FOMC meeting.  The BoJ Summary of Opinions said consumer inflation would move higher but will not reach the BoJ target until the end of 2023.

AUDUSD and NZDUSD rallied on the improved risk sentiment tone.

Chart of the Day:  EURUSD 4 hour

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 6.3359, previous 6.3418

Shanghai Shenzhen CSI 300 rose 0.72% to 4,712.31

USDCNY fix lowest in f years

Evergrande skips another bond payment

Chart:  USDCNY 1 month

Source: Yahoo Finance