October 24, 2024
- Soft Eurozone PMI data supports case for 50 bp rate cut in December.
- S&P Futures rebound and 10-year Treasury Yield retreats.
- US dollar opens with small losses compared to close.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.3819, overnight range 1.3813-1.3843, close 1.3838
The highly anticipated Liberal Party revolt proved to be all huff and no puff when parliament resumed on Wednesday. A smarmy, smug Prime Minister Trudeau sashayed out of the caucus meeting, smiling like the Cheshire cat. Apparently, he is still “the favourite of them all” and said the Liberal Party is “strong and united.” And he is mostly right. The National Post reports that at least 30 MPs are “strong and united” in their calls for him to resign and are demanding an answer by October 28.
Meanwhile, down the street at 234 Wellington, Bank of Canada Governor Tiff Macklem ignored his mirror, gazed into a crystal ball, and saw a central bank well behind the curve. He cut the overnight rate by 50 bps to 3.75% and paved the way for a repeat performance on December 11.
The Canadian economy is struggling with too much supply, a lack of consumer demand, and a weak labour market.
USDCAD rallied from 1.3834, pre-BoC announcement, to 1.3865 immediately afterward, then slowly drifted lower due to profit-taking. The 50 bp rate cut was not a total surprise, and traders were positioned for it. Even so, the prospect that BoC rate cuts will continue to outpace those of the Fed suggests USDCAD downside is limited.
Today’s USDCAD direction will be dictated by the reaction to today’s US economic releases and comments from new Cleveland Fed President Beth Hammack. Weekly jobless claims fell 15,000 to 227,000 from 242,000 which is giving the US dollar a bit of support.
USDCAD may hover close to the 1.3800-10 zone until after the 10:00 am option expiry window closes, as there are $1.7 billion in strikes rolling off.
WTI oil prices are at the top of their 71.00-72.34 overnight range due to ongoing concerns about an imminent Israeli strike on Iran. However, yesterday’s EIA report of a 5.47 million barrel increase in US crude inventories in the previous week may limit gains.
USDCAD technicals
The intraday technicals turned bearish with the move below 1.3840 and are looking to break support in the 1.3800-10 area to extend losses to 1.3740. A break above 1.3840 targets 1.3870
Longer term, the September 25 uptrend channel is intact between 1.3670 and 1.3920 . Bollinger band and RSI studies suggest USDCAD will start looking overbought in the 1.3870 area.
Today’s Range 1.3790-1.3870
Chart: USDCAD daily
Source: Investing.com
It’s a Dead Heat (or maybe not)
If you read Bloomberg today, Harris and Trump are locked in a dead heat with the candidates statistically tied in each of the seven swing states. Flip to the Wall Street Journal and you will learn that Donald Trump has a narrow lead over Kamala Harris. There are only 12 days to go, and the greenback remains bid due to the “Trump Trade.”
Tesla Results Help to Boost Equity Sentiment
Asian equity traders followed Wall Street’s lead and closed slightly in the red, except for Hong Kong’s Hang Seng index, which lost 1.30%. European traders shrugged off mixed PMI reports, and the French CAC 40 is leading the pack higher with a 0.75% gain. S&P 500 futures are up 0.47%, and the 10-year Treasury yield slid down to 4.19% from an overnight peak of 4.25%.
EURUSD
EURUSD chopped about in a 1.0770-1.0808 range due to mixed Eurozone and German PMI data. HCOB Flash Eurozone Composite PMI Output Index was 49.7 (September: 49.6), Services PMI was 51.2 (September: 51.4), which was an eight-month low. Manufacturing PMI was 45.5 (September: 44.9). S&P Global Chief Economist said, “The eurozone is stuck in a bit of a rut, with the economy contracting marginally for the second month running.” ECB policymaker and Bank of Portugal Governor Mario Centeno argued for a 50 bp rate cut at the next meeting due to persistent economic weakness. There are reportedly €3.63 billion of EURUSD 1.0775-1.0785 strikes expiring at 10:00 am.
GBPUSD
GBPUSD is in rally mode, climbing from 1.2909 in Asia to 1.2976 in NY, but still has a ways to go to recoup all of yesterday’s losses. The rally is impressive in light of soft UK Manufacturing and Services PMI. S&P Global wrote, “Business activity growth has slumped to its lowest for nearly a year in October as gloomy government rhetoric and uncertainty ahead of the Budget has dampened business confidence and spending. The early PMI data are indicative of the economy growing at a meagre 0.1% quarterly rate in October.”
USDJPY
USDJPY is at the bottom of its 151.79-152.83 range despite BoJ Governor Kazuo Ueda’s comments that the bank is maintaining a “fairly easy” monetary policy stance. The true driver of the USDJPY retreat was the lower US Treasury yields.
AUDUSD and NZDUSD
AUDUSD climbed steadily, rising from 0.6629 to 0.6662 due to the generally soft US dollar. Manufacturing, Services, and Composite PMI data was close to expectations and not a factor. NZDUSD followed Aussie higher and traded in a 0.5998-0.6033 range.
USDMXN
USDMXN fell in a 19.7542-19.8681 range, then climbed to 19.8377 in NY. Broad US dollar weakness and the drop in US Treasury yields fueled the losses, however, the prospect of a Trump victory limited the downside. Mexican half-month core inflation is expected at 0.2% compared to 0.21% previously.
BTCUSD (Bitcoin)
Bitcoin is consolidating recent gains in a 65,265-67,600 range, but traders are cautious as the cryptocurrency approaches its all-time peak of 73,750. Some traders believe a Trump victory is crypto-positive, while others are in a “wait-and-see” mode.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1286 (prev. 7.1245)
Shanghai Shenzhen CSI 300 fell 1.12% to 3928.83
Chart: USDCNY and USDCNH
Source: Investing.com
