Source: Paramount Pictures

May 13, 2022

  • Stocks bounce ahead of “bear market” barrier
  • Fed Chair Powell pushes back (sort of) against 0.75% rate hikes
  • USD inches lower overnight, but much higher for the week

FX change at a glance: weekly change

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3015-19, overnight range 1.2994-1.3047, previous close 1.3045

USDCAD continues to probe resistance in the 1.3060 area and then retreat.  The direction is determined by risk sentiment, measured by S&P 500 moves.

WTI oil prices are higher, rising from $106.34/barrel to $108.10/b.  Traders shrugged off a 70,000 barrel/day downgrade of 2022 oil demand forecast.  The International Energy Agency (IEA) blames China lockdowns and geopolitical concerns.

USDCAD reacted in a tepid fashion to the higher crude prices.  Bank of Canada Deputy Governor Toni Gravelle explained why, in just one word: “Trudeau.”  Ok, that’s not what he said at all. 

He blamed a lack of investment in the energy sector, which used to happen during periods of high prices. This time, investors are putting their money elsewhere as demand for fossils fuels is expected to moderate over the “medium to long term.”  Of course, that’s because the Trudeau government loudly opposes Alberta oil and wants to kill the industry. The following chart tells the story

Source: Bank of Canada

There are no top tier economic reports today or until next Wednesday’s CPI data.

USDCAD technical outlook  

The intraday USDCAD technicals are bullish above 1.2980, looking for a break of 1.3060 to extend gains to 1.3150. A move below 1.2980 targets 1.2930, which if broken will extend losses to 1.2850.

The long term technicals are bullish above 1.2220 which is the uptrend line from July 2011 on a weekly chart.  USDCAD broke above 1.2000 in February 2015 and stayed above that level ever since. The most recent test was July 2021. A decisive break above 1.3060 may lead to 1.3700

For today, USDCAD support is at 1.298 and 1.2930.  Resistance is at 1.3050 and 1.3090.  Today’s Range 1.2950-1.3050

Chart: USDCAD weekly

Source: Saxo Bank

G-10 FX recap and outlook

This week, Wall Street bulls felt like the teenagers at Camp Crystal Lake as they have been crushed, slashed, stabbed, and decapitated.  The S&P 500 dropped from 4308 Tuesday to 3859 yesterday before rebounding to 3930 at the close.

Russia exacerbated negative risk sentiment with threats against Finland if it joined NATO, while imposing sanctions on Gazprom Germania.

Fed Chair Jerome Powell helped get the rebound rolling.  He deftly dodged a question about taking a 0.75% rate hike off the table.

He replied, “I said we weren’t actively considering that.  But I said what we were actively considering, and this is just a factual recitation of what happened at the meeting, was a 50-basis point increase, that’s a half a percentage point increase, the first one in more than 20 years.  And that we thought that if the economy performs about as expected, that it would be appropriate for there to be additional 50-basis point increases at the next two meetings, so.”

Elon Musk tweeted that his deal to buy Twitter is on hold.  He wrote, “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,”

Asian equity indexes closed strongly, with Japan’s Nikkei 225 and Hong Kong’s Hang Seng adding around 2.64%.  European bourses are higher.  The French CAC index is 1.71% higher, followed by the UK FTSE 100, which is up 1.66%.  DJIA and S&P 500 futures point to a positive start on Wall Street.    WTI jumped 1.91%, while gold slipped 0.45%.  The US 10-year Treasury yield is 2.903%

EURUSD traded cautiously in a 1.0372-1.0419 range.  Another round of ECB policymakers speaking about raising rates in July underpinned prices, however, reports that Russia plans to weaponize oil shipments to the Eurozone and angry rhetoric around Finland’s plan to join NATO have hung a target on the EURUSD 1.00 level.

GBPUSD bounced from 1.2176 to 1.2230 on profit-taking and mildly improved risk sentiment.  However, further gains may attract sellers as the UK economic outlook is gloomy and escalating tensions around the Northern Ireland protocol.

USDJPY traded in a 128.30-129.35 range after safe-haven USDJPY sellers were overwhelmed by USDJPY demand as US Treasury yields bounced from their recent lows.

AUDUSD and NZDUSD climbed on the back of improved risk sentiment.

The Michigan Consumer Sentiment Index is expected to dip to 64 from 65.2.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7898   Previous 6.7290

Shanghai Shenzhen CSI 300 rose 0.75% to 3,988.60

Chart: USDCNY 1 month

Source: Yahoo Finance