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September 23, 2022

  • US 10-year Treasury yield rises to 3.765%
  • GBPUSD in free-fall, mini budget no help
  • US dollar soars on safe-haven demand

FX at a glance: 

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3524-28 overnight range 1.3470-1.3549, close 1.3488

USDCAD is on a tear and has been since the hotter than expected US inflation report on September 13.  Since then, prices climbed from 1.2955 to 1.3549 for a gain of 4.5% and there is more upside.

The USDCAD story is the US dollar story, and the greenback is rising virtually unimpeded against the G-10 majors, Bank of Canada monetary policy decisions, domestic economic data and politics take a back seat to the FOMC’s outlook for US rates in an environment of rising geopolitical tensions.

WTI oil prices are struggling to get upward momentum due to the latest surge in the US fears that a global recession has started or is just around the corner. 

WTI is trading at $80.44 in NY, down from $83.80 overnight and threatening the daily uptrend line from the rally that started May 2020.  A decisive break would target $60.00/b.  Opec and Russia are discussing measures to support prices, but it will be an uphill battle.

Statistics Canada said, “Retail sales decreased 2.5% to $61.3 billion in July, the first decline observed in seven months. Sales were down in 9 of 11 subsectors, representing 94.5% of retail trade. The decrease was driven by lower sales at gasoline stations and clothing and clothing accessories stores.

Core retail sales—which exclude gasoline stations and motor vehicle and parts dealers—decreased 0.9%

USDCAD traders ignored the data.

USDCAD Technical outlook

The intraday USDCAD are bullish above 1.3500, the hourly uptrend line from Tuesday, which guards the September 13 uptrend line at 1.3350.  A decisive break above 1.3550 targets 1.3640, then 1.3710. Only a move below 1.3410 would negate the upside pressure

For today, USDCAD support is at 1.3510 and 1.3470.  Resistance is at 1.3560 and 1.3610. Today’s range: 1.3510-1.3610

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Traders are panicking.

The 75 bp Fed rate hike and the promise of more hikes in the near future have stoked global recession fears. Eurozone PMI data suggests the area is already in a recession.

US Treasury yields soared, rising from 3.514% yesterday to 3.761% overnight. One story to explain the sharp rise is that traders reacted to speculation the Bank of Japan’s FX intervention meant the Japanese government would sell US Treasuries to fund the US dollar sales. It sounds reasonable.

Russia’s gunpoint referendum in occupied Ukraine territory began today. The choice is simple “do you want to be part of Russia? Yes, and live, no, and die. The referendum elevates the risk that Russia will use nuclear weapons to defend its new territories. The Russian Deputy Security Council Chair said as much.

Asian equity indexes closed with losses, led by a 1.82% drop in Australia’s ASX 200. European bourses are deep in the red, with the UK FTSE 100 falling 1.57%. S&P 500 and DJIA futures extended yesterday’s losses and point to a sharply lower open on Wall Street.

The US stock market weakness may be exacerbated because Goldman Sachs slashed its year-end target for the S&P 500 from 4,300 to 3,600.

EURUSD traded sideways in Asia, then dropped from 0.9851 to 0.9737 in Europe before inching back to 0.9762 in NY trading. Eurozone flash PMI data was weak, which ING economists say, confirms a recession has started.   German Composite PMI fell to 45.9 in September from 46.9 in August, while Eurozone Manufacturing PMI dropped to 48.5 from 49.6. The escalating tensions around Russia also weigh on prices.

The EURUSD technicals suggest a break below 0.9600 targets further losses to 0.9270.

GBPUSD is getting hammered, with prices plunging from 1.1272 to 1.1053 in NY. The currency has lost 3.5% since Monday, despite a mini-budget and a Bank of England rate hike. The BoE raised rates 0.50% by the Monetary Policy Committee showed they were confused about how to manage the economy. One member wanted just a 0.25% bump, while three others wanted a 100 bp increase. Traders decided that if the BoE didn’t know what to do, selling GBPUSD made sense.

The Liz Truss Government tendered a mini-budget today. Chancellor Kwasi Kwarteng cut taxes and capped energy bills for households. Traders were not impressed as they were concerned about the funding for the new measures. 

USDJPY traded erratically in a 141.78-143.26 range. Fear of intervention limited gains while surging US Treasury yields fueled demand.

AUDUSD traded negatively in a 0.6564-0.6654 range. Prices are depressed by the outlook for higher US rates which contrasts with the RBA’s plans to slow its pace of rate increases.

Fed Chair Jerome Powell hosts the “Fed Listens” event. His remarks are not likely going to differ from Wednesday’s press conference.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.9920, previous 6.9798

Shanghai Shenzhen CSI 300 fell 0.34% to 3,856.02

.Chart: USDCNY  1 month

Source: Bloomberg