June 2, 2022

  • European trading subdued due to UK holiday
  • Oil prices slip on reports Saudi’s may boost production
  • EUR and CAD are best performing major-G-10 currencies in May

FX change at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2657-62, overnight range 1.2635-1.2684, close 1.2658,

USDCAD is trading choppily with a negative bias but has been unable to chew through support in the 1.2630-40 area.

Prices dropped to 1.2612 immediately following the Bank of Canada 0.50% rate hike then jumped just as quickly and finished the day barely unchanged from Tuesday. The price action is understandable as the BoC hike was well telegraphed and no-one should have been surprised.

The monetary policy statement was hawkish, noting “the Governing Council is prepared to act more forcefully if needed,” which suggests a 0.75% rate hike is possible at the July 13 meeting. We may get more clarity from Deputy Governor Paul Beaudry’s Economic Progress Report, today at 11:00 am ET.

Canada April Building Permits fell 0.6% well below the forecast for a 0.7% which may be a sign that rate hikes are having an impact. On the other hand, if new house construction slows, demand will ensure existing home prices will rise.

USDCAD technical outlook

The USDCAD technicals are bearish. The downtrend line from the May 12 peak is intact while prices are below 1.2740. The level is guarded by resistance from the 200 day moving average at 1.2659 and the 100 day moving average at 1.2697.  A decisive breach below 1.2600-10 sets the stage for a test of support in the 1.2450 area.

For today, USDCAD support is at 1.2600-20 and 1.2550.  Resistance is at 1.2670 and 1.2710.  Today’s Range 1.2590-1.2690

Chart: USDCAD4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Asian markets were in a risk-off mood after Wall Street’s negative close.  European markets were more positive, but price action was subdued due to a lack of liquidity as the 4-day Queen’s Platinum Jubilee holiday shuttered UK markets.

The US dollar is modestly bid in early NY trading after yesterday’s hawkish comments from Fed policymakers turned a spotlight on rising US interest rates.

St Louis Fed President James Bullard pushed back against talk of a 0.75% rate hike but said the Fed must follow through on its forward guidance.  Richmond Fed President Thomas Barkin echoed those comments and added that balance sheet reduction does a little more to tighten rates.  Both men are FOMC voters.

Wednesday’s US economic reports underscored the resilience of the US economy and did nothing to suggest the Fed would stray from their rate hiking path.  Bond traders agreed and the US 10-year Treasury yield climbed from 2.864% to 2.951%, which sparked broad US dollar demand as well. The 10-year yield is 2.90% in NY.

Oil prices came under pressure following reports that Saudi Arabia is considering increasing production if sanctions on Russian crude production declines sharply.

European equity indexes are posting gains, led by a 1.00% rise in the French CAC index.  DJIA and S&P 500 futures are higher but below their best levels.  Gold eked out a gain while WTI oil slipped 2.3%.

Today’s US data was a mixed bag.  ADP Employment rose 128,000 compared to202,000 last month and forecast for a 300,000 increase today.  Meanwhile, weekly jobless claims fell 11,000 to 200,000.

EURUSD is trading at the top of its 1.0646-1.0701 range as it consolidates yesterday’s losses.  The hawkish Fed comments reminded traders that the Fed will have hiked rates twice before the ECB gets around to increasing its policy rate.  The intraday EURUSD technicals are bearish with the break below 1.0700.  A move below 1.0622 targets 1.0520.

GBPUSD mirrored EURUSD moves, trading in a 1.2471-1.2558 band.  GBPUSD closed weak, reached its session low in Asia, and has been grinding higher since helped by a bout of profit-taking in thin markets.  The intraday technicals are bearish below 1.2590.

USDJPY traded in a 129.70-130.23 range.  The peak was seen in Asia, with prices underpinned by the jump in US Treasury yields.  However, the drop in oil prices from talk of increased production and lingering concerns about BoJ intervention to buy yen sent prices to the bottom of the range where they remain in early NY trading.

AUDUSD dropped to 0.7143 in Asia, then rebounded to 0.7225 in NY, supported by bullish AUDUSD technicals and firm commodity prices.  NZDUSD followed suit in a 0.6462-0.6525 range.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7095 Previous 6.6651

Shanghai Shenzhen CSI 300 rose 0.16% to 4,089.57

Chart: USDCNY 1 month

Source: Yahoo Finance