June 14, 2024
- Risk aversion rises due to French politics
- BoJ disappoints (again)
- US dollar opens mixed from yesterday, higher from the close.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.3760, overnight range 1.3734-1.3767, close 1.3742
USDCAD is trading with a bit of a bid due to increased global risk aversion, broad US dollar strength, and divergent Bank of Canada and Fed interest rate outlooks. BoC Governor Macklem and Deputy Governor Kozicki spoke at separate events yesterday but neither offered an y new monetary policy insight.
WTI oil prices are slightly bid in a 77.72-78.74 range with potential supply increases offsetting concerns of increased demand.
Canada Manufacturing Sales rose 1.1% in April (forecast 1.2%, March -1.8%) and Wholesale sales data rose 2.4% m/m compared to a drop of 1.3% in March.
US Consumer Sentiment Index is expected at 72 vs 69.1 in May.
USDCAD Technicals
The intraday technical are bullish above 1.3740, looking for a break above 1.3780 to extend gains to 1.3810. A move below 1.3740 targets 1.3710.
Longer term, USDCAD has been trapped in a 1.3600-1.3900 range since mid-April and it doesn’t appear that things will change anytime soon. The uptrend line from the beginning of June is intact above 1.3600 but there is plenty of resistance in the 1.3780-1.3810 area.
For Today, USDCAD support is at 1.3740 and 1.3710. Resistance is at 1.3780 and 1.3810. Today’s Range 1.3740-1.3810.
Chart: USDCAD daily
Source: DailyFX
Political Hokey Pokey
“You put your Left wing in, then you put your Right wing in, and you shake it all about; that’s how you do the Hokey Pokey.” Investors in Mexico and France are dancing up a storm and the US dollar is clapping time. The WSJ reports that Macron’s snap election call is backfiring in his face. Instead of catching right wing parties off guard, polls suggest Le Pen’s party is on course to win 270 seats. French-German bond spreads widened to 70 bps in favor of Germany. The news sank the Euro.
Meanwhile, the investor reaction to a more powerful leftist government re-elected in Mexico is just as nasty for the Mexican peso. Investors fear the Mexican government will enact more business-unfriendly policies.
Musk Wins Pay Packet Lottery
Everything is supposed to be big in Texas, which is probably why Elon Musk wants to relocate Tesla’s head office to Austin. And he needs a big state to go along with his ginormous pay package. Tesla shareholders voted to reward Elon Musk with a $56 billion pay deal to thank him for presiding over the 38% decline in Tesla stock in the past year. Imagine what he would have earned if he bankrupted the company.
Yield to Bullish Bond Traders
The US 10-year Treasury yield is rising and falling like it is the Japanese yen. Last Friday it spiked to 4.455% in the wake of the robust nonfarm payrolls report, then dropped to 4.25% on Wednesday when CPI was cooler than expected. Yields jumped to 4.33% after the FOMC dot plots lowered rate cut projections to just one in 2024. Then yesterday, a tame PPI report drove yields lower and they continued to fall overnight and are sitting at 4.20% in NY. However, FX traders are ignoring the slump due to concerns about Japanese rates and the French election.
EURUSD
EURUSD is getting punished because of political uncertainty in France. EURUSD looked pretty perky yesterday as it rallied to 1.0820, but those gains were erased overnight on fears that Marine Le Pen’s party will thrash Macron’s party in the elections. Even worse, the EU Commission could put France into Excessive Debt Procedure (EDP), which is initiated when a member state’s budget deficit exceeds 3% of its GDP or its public debt surpasses 60% of GDP without diminishing at a satisfactory pace. The EURUSD technicals suggest that the breach of 1.0750 sets up a test of support at 1.0600.
GBPUSD
GBPUSD continued to retreat from yesterday’s post-US PPI data peak and traded negatively in a 1.2694-1.2764 range. The negative pressure stems from risk aversion due to French politics. GBPUSD is modestly underpinned by the UK election likely pre-empting a Bank of England rate cut at next Thursday’s meeting. The GBPUSD technicals are bullish above 1.2680.
USDJPY
USDJPY rode a roller coaster overnight, rising from the NY close of 157.02 to 158.27 after the Bank of Japan disappointed markets. The BoJ left rates unchanged, as expected, but failed to announce a reduction in bond purchases, which had been widely anticipated. The BoJ said that details of bond purchase reductions would be announced at the July meeting. At his press conference, Governor Kazuo Ueda said, “Depending on economic and price data that become available at the time, of course there is a possibility we could decide to raise interest rates and adjust the degree of monetary support in July.” That, and general risk aversion sentiment was enough to drive USDJPY down to 156.87 just before NY opened.
AUDUSD and NZDUSD
AUDUSD peaked on Wednesday after Fed Chair Powell’s press conference and dropped from 0.6709 to 0.6625 yesterday and is at the bottom of its 0.6621-0.6642 overnight range. Chinese Premier Li Qiang begins his visit on Saturday and many hope that he will lift the remaining sanctions. The sanctions were imposed after Beijing had a hissy fit when Australia called for an independent probe into China’s role in the pandemic.
NZDUSD traded negatively in a 0.6121-0.6172 range due to poor global risk sentiment and weak PMI data (actual 47.2, April revised down to 48.8, from 48.9). The senior economist from the data firm, Doug Steel, wrote, “PMI readings to date this year are consistent with falling manufacturing GDP. We anticipate next week’s Q1 GDP figures to include a contraction in the manufacturing component. The latest PMI indicators suggest Q2 will also be weak and potentially weaker than we already anticipate.”
USDMXN
USDMXN rebounded from yesterday’s low of 18.3869 and traded in a 18.3607-18.6420 range overnight. The low was achieved after Wednesday’s comments from Banxico President Victoria Rodríguez, who suggested that the central bank would intervene if volatility became extreme. Nevertheless, traders seem to fear increasing leftist policies more than intervention.
BTCUSD (Bitcoin)
BTCUSD traded lower in a 66,271-68,444 band due to poor global risk sentiment and broad US dollar strength. The market uncertainty has led to net outflows from US ETFs in the past three days
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1151 vs exp. 7.2620 (prev. 7.1122).
Shanghai Shenzhen CSI 300 rose 0.44N% to 3541.53.
Chart: USDCNY and USDCNH
Source: Investing.com
