Quiet start to week from Asia holidays and data void
FX distracted by China actions toward Taiwan plus ongoing Evergrande concerns
US dollar trades quietly, opens with losses from Friday open
FX at a Glance:
USDCAD Snapshot Open 1.2616-20, Overnight Range 1.2607-53, Previous close 1.2650
USDCAD extended losses in Asia and then bounced inside a 1.2607-1.2644 until the NY open. Traders were looking for direction from broad US dollar moves but they were in short supply.
USDCAD saw a bit of underperformance after Friday’s soft, but better-than expected July GDP which fell 0.1% rather falling 0.2%. Economists spun the result and the BoC’s subsequent forecast for a0.7% gain in August as evidence for robust Q3 growth.
USDCAD is also being undermined by steady to firming WTI oil prices which firmed from $75.76/barrel at Friday’s close to $76.00 in NY. Prices have rallied due to weather-related supply disruptions, gas price rally, and post-covid demand. Opec meets today and there is speculation the cartel will raise the scheduled November production increase of 400,000 barrels/day to 500,000.
Traders are looking ahead to Friday’s Canadian employment report (employment change forecast 60,000).
Technical view: The USDCAD technicals are bearish below 1.2740 but need to break below 1.2590, the June uptrend line support to avoid more 1.2590-1.2740 consolidation. A downside break targets 1.2430 while a move above 1.2740 targets 1.2950.
For today, support is at 1.2590 and 1.2540. Resistance is 1.2660 and 1.2690. Today’s range 1.2550-1.2640.
Chart USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
FX trading got off to a slow start in Asia due to holidays in China, US political theater, elevated concerns surrounding Evergrande Group’s health, and China’s overtly hostile actions toward Taiwan.
Asia stock markets closed mixed. The Nikkei 225 and Hong Kong’s Hang Seng Index were down, while Australia’s ASX200 gained 1.29%. European bourses are trading mixed around flat and Wall Street futures are down. Gold prices are modestly lower and US 10 year Treasury yields are slightly firmer.
Taiwan said that about 93 Chinese air force planes trespassed in its airspace over the weekend. America responded by saying, “The United States is very concerned by… China’s provocative military activity near Taiwan, which is destabilizing, risks miscalculations and undermines regional peace and stability. China heard “blah, blah, blah.
China’s troubled property developer Evergrande Group failed to pay a $260 million note that matured Friday. Trading in the company’s shares was halted in HK amid reports that Hopson was buying a 51% stake in Evergrande Property Services.
Today, China/US trade is center stage as US Trade Rep Katherine Tai speaks on US/China trade. She is expected to say “Today, I will lay out the starting point of our Administration’s strategic vision for realigning our trade policies towards China to defend the interests of America’s workers, businesses, farmers and producers, and strengthen our middle class,
Fed Vice Chair Richard Clarida took advantage of his position to sell a bond fund the stay before Chair Powell issued a statement on pandemic policy action. There is no “I” (for integrity) in Fed.
The Democrat budget drama is merely a distraction and unlikely to cause the government to be shutdown.
EURUSD traded in a 1.1589-1.1621 range. The single currency suffers from ongoing German political uncertainty as the SPD and CDU attempt to find coalition partners. The intraday technicals are bearish below 1.1650.
GBPUSD rallied to 1.3591 from 1.3534 due to broad US dollar weakness and fading concerns around the UK. Traders ignored the latest wrangling with the EU over the Irish border. The UK is demanding changes. Traders appear to have moved passed concerns about the UK fuel crisis. The intraday technicals are bullish above 1.3530, looking for a break above 1.3600 to extend gains to 1.3690.
USDJPY remains elevated and is trading at the top of its 110.89-111.30 range. Prices are supported by the rally in 10-year Treasury yields to 1.495% from 1.46% in Asia. Japan is expected to hold a general election on October 31.
AUDUSD and NZDUSD posted gains due to broad US dollar weakness. AUDUSD traders do not have high hopes for anything of note from the RBA monetary policy meeting tomorrow.
Chart of the Day- USDJPY
Chart: Saxo Bank
FX open, high, low, previous close
Chart: Saxo Bank
China Snapshot -Closed Golden Week holidays
Today’s Bank of China Fix, 6.4854,
Shanghai Shenzhen CSI 300 closed
Chart: USDCNH (offshore)
Source: Saxo Bank