Buy? Sell? Hold? Drink!


February 9, 2023

  • Hawkish Fed-speak tempered by dovish trader views.
  • Weekly jobless claims data may be a market catalyst today.
  • US dollar opens mixed from yesterday but retreats from NY close

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3397-01, overnight range 1.3382-1.3458, close 1.3447

USDCAD rallied yesterday as the S&P 500 index tumbled thanks to a rash of hawkish comments by Fed officials. Optimists prevailed overnight, lifting S&P500 futures and knocking the greenback lower. The price action is just noise as USDCAD has been trapped in a 1.3260-1.3520 range since January 19.

The first ever Bank of Canada Summary of Deliberations (minutes) from the January 25 monetary policy meeting were released yesterday. As expected, they revealed a dovish leaning Governing Council.

WTI oil traded with a positive bias in a tight $77.63-$78.81 range.  Prices were supported by ongoing hopes for increased demand by China but the EIA report that US inventories rose 2.2 million barrels helped limit gains.

The Canadian economic calendar is empty,

USDCAD Technical Outlook

The intraday USDCAD technicals are modestly bullish above 1.3370, looking for a move above 1.3450 to extend gains to the1.3490-1.3500.

The longer-term price action is directionless inside the 200-day moving average (1.3230) and the 100-day moving average at 1.3530.

For today, USDCAD support is at 1.3360 and 1.3320.  Resistance is at 1.3460 and 1.3490

Today’s range 1.3360-1.3440

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

“Welcome to the FX Carnival.  Step right up to the Duck Pond.  There’s a winner every time. Picking a hawkish duck knocks stock markets lower and the US dollar higher. Grab a dovish duck and it’s off to the races for the S&P 500 index and down the tubes for the dollar.”

There was no shortage of hawkish comments from Fed policymakers yesterday. Minneapolis Fed President Neel Kashkari repeated earlier comments about the need for Fed funds to rise to 5.4% to tame inflation. His colleague Fed Governor Christopher Waller concurred saying that interest rate may rise “higher for longer than some are currently expecting.”

However, NY Fed President John Williams was a tad less hawkish suggesting rates only need to rise to the 5.0-5.5% range.

The weekly jobless claims data showed claims rising by 13,000 to 196,000 (forecast 190,000), a four-week high and a bit of evidence that the January nonfarm payrolls report was an anomaly.

Asian equity markets closed mixed.  Australia’s ASX 200 fell 0.53%, Japan’s Nikkei 225 index was flat, and Chinese indexes rallied with the Hang Seng Index gaining1.60%.  European bourses are sharply higher, led by a 1.56% gain in the German Dax.  However, those gains have more to due with quarterly earnings reports than they do with Fed comments. S&P 500 futures have risen 0.74% as of 6: 00 am PT

The US 10-year Treasury yield is 3.584%, down from 3.67% yesterday.

Gold (XAUUSD) climbed to $1888.69, peaking in early NY, with traders looking for further gains to $1900.00, while prices are above $1860.00.

EURUSD rallied from 1.0711 to 1.0789, with prices getting a boost from German inflation data. January CPI rose 8.7% y/y which was below the 8.9% forecast but higher than the December result of 8.6% m/m.  EURUSD was also underpinned by news Sweden’s Riksbank hiked rates by 50 bps, which reminded traders that ECB rates have a lot higher to go.  EURUSD needs to decisively move above minor resistance 1.0790-1.0800 or risk dropping to 1.0690.

GBPUSD climbed from 1.2058 to 1.2189 due to broad US dollar weakness and comments by BoE officials advocating the need for higher rates.  Governor Bailey to the MPC hearings that he voted to raise rates due to labour market tightness and that although inflation has “turned a corner” he wants to see more evidence. The intraday GBPUSD technicals are bullish looking for a test of resistance at 1.2260.

USDJPY traded in a 130.35-131.82 range, weighed down by the slide in the US 10-year Treasury yield.  In addition, discussions about whether the bias of the next BoJ governor is also weighing on prices.

AUDUSD is at the top of its 0.6923-0.6982 range.  The gains are underpinned by anticipation of increased resource demand from China, a hawkish RBA monetary policy outlook and general US dollar selling pressures.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix: 6.7905, Previous: 6.7752

Shanghai Shenzhen CSI 300 rose 1.34% to 4130.86.

Chart: USDCNY 1 month

Source: Bloomberg