Source: Wikipedia

May 2, 2022

  • Trading volumes lower in Asia, and UK due to holidays
  • Weak China PMI data weighs on global growth outlook
  • USD opens with bid tone ahead of FOMC meeting, Wednesday

                             NO COMMENTARY PUBLISHED MAY 3

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2868-72, overnight range 1.2843-1.2895, previous close 1.2859

USDCAD attempted a downside break out Friday after Chinese officials spoke about new stimulus plans, which gave rise to hopes for a global economic rebound. That sentiment soured due to inflammatory rhetoric from Russia, month-end rebalancing demand for dollars, weekend profit taking and falling US equity markets.

As a result, USDCAD motored higher, climbing from 1.2720 to close at the session peak of 1.2858. Those gains consolidated in a holiday thinned market overnight.

Traders largely ignored the better than expected Canadian GDP report which showed the economy grew a better than expected1.1%.

WTI oil prices were bid Friday, climbing to $107.90/barrel before being swamped by negative risk sentiment, and a surging greenback, which drove prices to $102.96/b at the close. Prices fell further overnight as China’s covid restrictions risk softer global demand. Weaker than expected China Manufacturing and Non-Manufacturing PMI reports exacerbated selling and WTI fell to $101.06/b.

The FX focus shifts to Wednesday’s FOMC report. The FOC is universally expected to raise rates 0.50% to 0.75-1.0% and start to reduce the balance sheet.

Robust domestic data combined with steady to firm oil prices and the prospect of sharply higher Canadian interest rates should slow but not prevent USDCAD gains as traders focus on Wall Street and the Fed.

USDCAD technical outlook  

The intraday USDCAD technicals continue to flip-flop inside the 1.2450-1.2890 range that has contained price action since December 23. They turned negative on Thursday on the move below the 1.2790-1.2810 level then flipped to bullish when prices rallied above 1.2790.

USDCAD is targeting a test of resistance in the 1.2950-1.3030 resistance zone, which if decisively broken suggests gains to 1.3350.  However, if a topside break fails, expect more 1.2500-1.2950 consolidation.

For today, USDCAD support is at 1.2830 and 1.2780.  Resistance is at 1.2910 and 1.2950.  Today’s Range 1.2820-1.2920

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

May Day, May Day! Equity bulls and US dollar bears are in distress as the US 10-year Treasury yield resumes its dance with the pivotal 3.0% level. Yields climbed from 2.85% Friday to 2.951% overnight before slipping to 2.916% in early NY trading. The gains are mainly due to pre-FOMC meeting jitters.

Japan’s Nikkei 225 index was the only major Asian equity market open, and it finished with a tiny 0.11% loss. The French CAC index is down 1.35%, while the UK FTSE 100 index is closed due to a Bank Holiday. S&P 500 and DJIA futures are mildly higher.

Gold prices slid from $1897.36 at Friday’s close to $1882.07 in NY due to broad US dollar strength and Fed rate hike concerns.

EURUSD traded in a 1.0511-1.0568 range. ECB policymaker Luis de Guindos suggested that a July rate hike was possible but unlikely. Traders said “thanks; for nothing.” Germany is reportedly considering ending its dependence on Russian oil by the end of the summer. However, upstanding global citizens like India and China are ready to pick up the slack.

Eurozone Consumer and Industrial Confidence, Economic, and Services Sentiment reports were all worse than forecast, which helped limit EURUSD gains.

GBPUSD traded quietly in a 1.2541-1.2596 range as the UK was closed for a Bank holiday. Traders are looking ahead to Thursday’s BoE meeting, when a 0.25% rate hike is expected.

USDJPY is consolidating last week’s gains in a 129.62-130.47 band, with prices closely tracking 10-year Treasury yields and FOMC rate hike sentiment, on the heels of another dovish BoJ monetary policy meeting.

AUDUSD and NZDUSD prices tracked broad US dollar sentiment. Both countries were closed for national holidays.

US data includes ISM Manufacturing (forecast 87.5, March 87.1)

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

Chart: Saxo Bank

China Snapshot -Markets close until Wednesday

Today’s Bank of China Fix 6.6177 (Previous Fix 6.6177)

Shanghai Shenzhen CSI 300 rose 2.43% to 4,016.24

China is closed Monday to Wednesday for May Day holidays

April Manufacturing PMI 47.4, previous 49.5

April Non-manufacturing PMI 41.9, previous 48.8

April Caixin Manufacturing PMI 46.0, previous 47.0

Chart: China 1 month

Source: Saxo Bank