November 8, 2024
- FOMC expected to cut 25 bps
- Bank of England cuts rates by 25 bps.
- US dollar hangs on to post-Trump win gains.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.3885 overnight range 1.3871-1.3949 close 1.3941
USDCAD has been rockin’and rollin’ inside a 1.3823-1.3960 range since last Friday and despite its overnight volatility, USDCAD opened virtually unchanged from yesterday morning. All that means is that traders are undecided. Trump’s tariff plan is a can that can be kicked down the road, at least until January 20,2025, when he returns to the Oval Office. Until then, the outlook for Canadian and US interest rates will drive direction.
The Fed may be cutting rates by 25 bps today, but that is fully priced in and the 10-year CAD/US interest rate spread has widened to -111.7 today compared to 76.1 a month ago when USDCAD was trading at 1.3570.
The looming FOMC meeting and the ongoing uncertainty around the next Trump administration suggests that FX markets will be quiet until this afternoon.
weekly US jobless claims data rose 5,000, as expected and therefore a non-event.
USDCAD Technicals
The intraday USDCAD technicals are bullish above 1.3860 and looking for a break above 1.3920 to extend gains to 1.3960. A move below 1.3860 risks a retest of 1.3820.
Longer term, USDCAD support is entrenched at 1.3750. That level represent a series of “tops” in August and a series of support in October. It is being guarded by an uptrend line that began October 17 and comes into play at 1.3820.
For today, USDCAD support is 1.3860 and 1.3820. Resistance is 1.3920 and 1.3960.
Today’s Range 1.3860-1.3960
Chart: USDCAD daily
Democrats are Dumbfounded
Kamala Harris cannot believe her luck. Pop stars, geriatric rockers (that’s you, Mr. Springsteen), Hollywood heavyweights, and all of the mainstream press and their pollsters told her she was winning. No one told American voters, and Trump kicked her ass. Joe Biden’s party finally got the message—most Americans just don’t like their open-border, soft-on-crime, and tax-and-spend agenda.
FOMC Takes Center Stage
The Fed is universally expected to cut rates by 25 bps to 4.75%. In September, the dot-plot projections showed 9 members wanted just one more cut in 2024, while 10 others wanted two more cuts. Today, we find out how Trump’s victory and his inflationary policies will change that view.
Equities Hanging on to Gains
Asian equity indexes closed higher, led by a 1.00% rise in Japan’s Topix and a 0.33% gain in the Australian ASX 200. Hong Kong’s Hang Seng index soared 2.02% in anticipation of more Chinese government stimulus. European bourses are rallying. The German DAX has gained 1.31%, despite weak German data and political turmoil. S&P 500 futures are modestly higher with a 0.13% gain.
EURUSD
EURUSD is trading defensively in a 1.0713-1.0772 range. The single currency is being weighed down by dismal German Industrial Production data and shrinking export volumes, alongside news that the German government coalition collapsed, setting the stage for another election, likely in March 2025. German IP fell 2.5% with weakness seen across the board. ING economists are predicting a winter recession in Germany. The EURUSD technicals are bearish. The move below the 1.0780-90 area snapped the uptrend line that was intact since mid-April and set the stage for a test of support at 1.0600.
GBPUSD
GBPUSD traded with a bit of a bid in a 1.2875-1.2948 range . The Bank of England cut rates by 25 bps but the press conference Q&A helped boost GBPUSD to 1.2975.. The statement said that policymakers “need to take a gradual approach to cutting rates while leaving monetary policy sufficiently restrictive until inflation returns sustainably to the 2.0% target.” All of that was expected.
USDJPY
USDJPY consolidated the post-election rally in a 153.65-154.72 range, supported by the US 10-year Treasury yield sitting at 4.45%. The steep yen gains since the election brought Japan’s favorite currency commentator, Atsushi Mimura, to the microphone to warn that authorities will act against “excessive” moves, and some analysts believe that such action could include a rate hike.
AUDUSD and NZDUSD
AUDUSD recouped all of its Trump victory losses and rallied from 0.6564 to 0.6639 on speculation that Chinese authorities will ramp up fiscal stimulus to help offset Trump and his tariff agenda. The expectation for a Fed rate cut also fueled the gains. NZDUSD mirrored AUDUSD moves and traded in a 0.5931-0.6004 range for the same reasons.
USDMXN
USDMXN retreated from its overnight peak of 20.2120 and dropped to 20.0543 after Mexican inflation rose 4.76% y/y, compared to 4.58% previously. Traders are torn between Trump and the Fed. The FOMC is expected to cut rates by 25 bps today, and that serves to narrow the Mexico/US interest rate spread, but Trump’s planned tariffs would derail Mexican economic growth.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1659 (prev. 7.0993)
Shanghai Shenzhen CSI 300 rose 3.02% to 4145.70
China Trade surplus rebounds, rising to $95.27b from $81.71b in September. The rebound beat expectations and is due to the front-loading of orders ahead of the US election.
Stock soared in anticipation that the Xi Jinping administration will front-load stimulus to counter the impact from Trump’s proposed new tariffs. It’s hard to believe that the rally will last, as Trump is around for 4 more years.
USDCNY rallied as the PBoC allows it currency to depreciate due to the risk of new tariffs.
Chart: USDCNY and USDCNH
Source: Investing.com
