January 29, 2024

  • Global risk sentiment sours after Iran-proxy attack on US base in Jordan.
  • “FOMC may stop signaling that rate hikes are possible”.-WSJ
  • US dollar opens mixed from Friday’s open.

FX at a glance

Source: IFXA

USDCAD Snapshot: open 1.3434-38, overnight range 1.3426-1.3463, close 1.3458.

USDCAD rejected gains above 1.3550 last week and traders are now looking to see if support in the 1.3420 area will contain the downside.  Probably not.  WTI oil is grinding out gains which is mildly bearish for USDCAD but more importantly, the Fed may come out of the closet and declare it is dovish.  If so, USDCAD may slide due to widespread US dollar selling pressures.  However Canada’s lagging economic performance compared with the US should limit the downside.

WTI oil climbed from $77.58 to $79.28/b overnight and has gained 9.6% from last Monday’s low  to today’s top. That rally has helped to cap USDCAD gains. Analysts are predicting more gains due to oil supply risks after Iran-backed Houthis missile strikes in the Red Sea. In addition, Iran’s actions could lead to renewed crude exp[ort sanctions on the country.

USDCAD Technicals:

The intraday USDCAD technicals are bearish.  Last weeks downtrend is intact while prices are below 1.3460 and prices are testing 100-day moving average support at 1.3434.  A decisive break below the 1.3410-20 zone suggests further losses to 1.3340.

In addition, the move below 1.3495 ( 38.2% Fibonacci retracement level of July-November range) is targeting the 61.8% Fibo level of 1.3400.

For today, USDCAD support is at 1.3420 and 1.3370. Resistance is at 1.3460 and 1.3490. Today’s range is 1.3410-1.3470,

Chart: USDCAD 4 hour

Source: Daily FX     

G-10 FX recap

There are a lot of market-moving events and data this week. Unfortunately, there aren’t any today.

Traders returned to their screens to find the world in a modestly risk-averse environment. A judge in Hong Kong ordered former high-flying Chinese developer Evergrande liquidated.

Sentiment deteriorated further on news that three US soldiers were killed by a drone strike at their base in Jordan. Many Republican politicians are demanding that Biden retaliate against Iran; Senator Lindsay Graham was one of them. He said, “Hit Iran now. Hit them hard.”

The Wall Street Journal’s Nick Timiraos, the man with supposedly a conduit for Fed messaging, wrote that “Fed officials are likely to take a symbolically important step this week by no longer signaling in their policy statement that rates are more likely to rise than fall. Ditching this so-called tightening bias would affirm that officials are entertaining lower rates in the coming months.

Source: John Authers Bloomberg

The global equity market reaction was mixed. The major Asian equity indexes rose with Hong Kong’s Hang Seng rising 0.78%, slightly more than Japan’s Nikkei 225 index which gained 0.77%. Australia’s ASX 200 rose 0.31%.

European bourses are flat to modestly lower. The Garman Dax is down 0.51% while the UK FTSE 100 index is up 0.19%. SP500 futures are unchanged while the US 10-year Treasury yield slipped to 4.10% from 4.16% at Friday’s close.

Traders took a shine to gold (XAUUSD) with the escalation in Middle East tensions. Gold rose from $2016.21 at Friday’s close to $2033.94 before inching down to $2027.30 in early NY trading.

EURUSD is trading defensively in a 1.0808-1.0850 range. The single currency is beset by weak economic growth, the risk of further economic disruption in France after farmers vow to blockade Paris. ECB Governing council members appear to agree that a rate cut is due, but they don’t agree on the timing. Governing council member Francois Villeroy said, “rates could be cut at any time” while his colleague Peter Kazmir said “I will not jump to premature conclusions about the timing.” The EURUSD technicals are bearish with the move below the 200-day moving average which suggests further losses to 1.0725.

GBPUSD traded in a 1.2691-1.2719 range with traders patiently awaiting Thursday’s Bank of England meeting. The BoE is expected to leave rates unchanged, but the message may be somewhat dovish.

USDJPY traded lower in a 147.71-148.34 range due to lower US 10 -year Treasury yields, and negative risk sentiment. Trader’s may also have been distracted by a 4.8 magnitude earthquake that shook Tokyo on Sunday.

AUDUSD firmed in a 0.6570-0.6607 range as it continues to benefit from last week’s Chinese government stimulus measures.

The US data calendar is empty.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: today 7.1097, expected 7.1785, previous 7.1074.

Shanghai Shenzhen CSI 300 fell 0.90%  to 3303.96.

Chart: USDCNY and USDCNH daily

Source: Investing.com