Photo: Wikipedia

June 27, 2022

  • Russian defaults on bonds-Russian Fin Minister calls it a farce
  • G-7 discussing Russia oil price cap and gold ban
  • US dollar defensive ahead of month, quarter, and half year end

FX change at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2888-92, overnight range 1.2867-1.2915, close 1.2894

USDCAD retreated in line with an improved risk tone and modestly higher crude oil prices.

USDCAD direction remains tightly correlated with S&P 500 moves, but that correlation may come under stress this week. Month, quarter, and half-year end rebalancing flows may underpin Wall Street but the S&P losses in June may lead to US dollar demand.

Finance Minister Chyrstia Freeland wants to help people impacted by inflation but “have to strike a balance. One is supporting Canadians with affordability challenges and the other is fiscal restraint, because I don’t want to make the Bank of Canada’s job harder than it already is.”  Her remarks were ignored as just 10 months ago, her boss, Justin Trudeau proclaimed “ You’ll forgive me if I don’t think about monetary policy.”

There are no notable Canadian economic reports this week.

USDCAD technical outlook

The intraday USDCAD technicals are bullish while trading below 1.2950, looking for a break of 1.2860 to extend losses to 1.2840, then 1.2810. A break above 1.2950 targets 1.3050.

Longer term, the double top in the 1.3070 area continues to cap USDCAD gains. A decisive break below the 1.2840-60 zone will target support in the 1.2500 area.

For today, USDCAD support is at 1.2860 and 1.2840. Resistance is at 1.2920 and 1.2950.

Today’s Range 1.2860-1.2950

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Traders are taking the latest geopolitical and global monetary policy developments in stride. It’s “been there, seen that, got a postcard” sort of morning.

The G-7 leaders are discussing putting a cap on oil prices. The plan is to only allow the transportation of Russian oil below a price that seriously hampers Putin’s ability to wage war. It would be enforced by slapping restrictions on insurance and shipping, as 95% of worlds tankers covered by UK based International Group of Protection and Indemnity clubs.

Russia defaulted on its foreign debt. It’s a bogus kind of default. Russia has the money to pay, but Western sanctions are preventing remittance.

Russia fired missiles into Kyiv and reportedly used Belarus to stage other missile launches. Moscow’s knickers are in still in a knot after EU leaders accepted Ukraine and Moldova as membership candidates.

Iran continues to enrich Uranium even as talks reviving the 2015 nuclear deal drag on.

Meanwhile, the resident nutbar in North Korea is vowing to take revenge on aggressive moves by the UK and South Korea.

The US is busy self-harming. The only difference between Iran’s Ayatollah/ Republic Guards and the US Supreme court and NRA is beards.

None of that matters to financial markets. They are in “rally mode’ following Friday’s University of Michigan Consumer Sentiment report, which revised its long-term inflation forecast (5-10 year) lower. The ensuing stock market rally is a bit of a head-scratcher since a 5-year forecast of anything, and a screen door on a submarine are just as useful.

Asia equity indexes closed with solid gains with month, quarter, and half-year demand providing some support. Japan’s Nikkei 225 index closed 1.43% higher while Australia’s ASX 200 jumped 1.93%. European traders are not as enthusiastic, but the major bourses are trading with a bullish bias. DJIA and SP500 futures are in positive territory but below their best levels due to the 10-year US Treasury yield rising from 3.13% to 3.17%. Gold an oil prices are modestly higher.

US Durable Goods Orders rose 0.7% in May and excluding Transportation, posted a 0.6% increase.

EURUSD climbed from 1.0551 to 1.0590 range.  Prices were underpinned by Friday’s Michigan survey downward revisions to the long-term inflation forecast. The ECB said that starting with the July meeting monetary policy decisions will be announced at 14:15 CET (8:15 EDT) and the press conference 30 minutes later. The intraday EURUSD technicals are bullish above 1.0540.

GBPUSD climbed from 1.2266 to 1.2331, then dropped to 1.2274 in early NY, following the release of KPMG’s UK Outlook. The outlook warned “There are growing concerns that a combination of policy actions to combat inflation and any further fallouts as a result of geopolitical tensions could bring about another recession.

USDJPY firmed in a 134.53 to 135.27 band, with gains fueled by higher Treasury yields and dovish conclusions in the BoJ Summary of Opinions.

AUDUSD traded in a 0.6909-0.6957 range supported by firmer commodity prices, and positive risk sentiment.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.6850, Previous 6.7000

Shanghai Shenzhen CSI 300 rose 1.13% to 4.7 Previous close 4,394.77

PBoC advisor Wang Yiming said China’s economy will grow 4.75% in 2022 due to Covid issues, contradicting President Xi Jinping who claimed the economy would grow at 5.5%.

Chart: USDCNY 1 month

Source: Yahoo Finance