February 3, 2023

  • Nonfarm payrolls soar 517,000
  • ECB meeting raised more questions than it answered.
  • US dollar recoups some losses, except against JPY.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3344-48, overnight range 1.3314-1.3420, close 1.3316

USDCAD popped from 1.3365 to 1.3420 following the super-strong US nonfarm payrolls report but fails to break above resistance at 1.3440, leaving the currency rangebound in a 1.3260-1.3440 band.

Yesterday, USDCAD looked like it was ready to fall off a cliff in the aftermath of Fed Chair Powell’s press conference. Mr Powell didn’t seem to know if he was bearish or bullish on interest rates, so traders decided for him and sold USDCAD.

The ECB meeting had a similar outcome but this time traders bought US dollars.  They determined that the central bank was not very hawkish at all and USDCAD rallied by default.

USDCAD was also underpinned by WTI oil prices sliding from $79.70/b on Wednesday to $$75.19/b in Europe today.  Prices are under pressure partly because the expected Chinese demand as its economy reopened, has been slow to materialize. In addition, there are reports that many speculative positions are being unwound due to the lack of upside momentum.

USDCAD direction continues to be dictated by S&P 500 index moves.

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish following the failure to break below support in the 1.3250 and the subsequent rally above resistance at 1.3380 is targeting key resistance in the 1.3440-60 area.

The USDCAD downtrend from the beginning of the year is intact and bound by 1.3210 on the bottom and 1.3450 on the top.

For today, USDCAD support is at 1.3360 and 1.3310.  Resistance is at 1.3440 and 1.3470.

Today’s range 1.3360-1.3460

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The US economy is firing on all cylinders, at least by the NFP measure. Nonfarm payrolls soared by 517,000 jobs, the unemployment rate fell to 3.4% from 3.5% in December and below the 3.6% forecast. 0.3%.

Fed Chair Jerome Powell may be muttering “I told you so.”

The stronger than expected data supports his assertion that US rates need to rise further and remain elevated for an extended period. That explains why S&P 500 futures dropped to 4127 from 4155, and the 10-year Treasury yield jumped to 3.49% from 3.40%.

Central Bank meetings are all fun and games until someone loses an eye, or in the case of FX, if a central banker loses the plot.

European equity indexes are trading lower, except for the UK FTSE 100 which is up 0.21%. S&P 500 futures are flat, despite disappointing earnings reports from Apple, Alphabet, and Amazon.  Gold (XAUUSD) is consolidating yesterday’s losses at $1915.83.

EURUSD plunged from 1.1030 to 1.0885 after the ECB press conference, traded in a 1.0832-1.0936 range overnight and revisited the low following the NFP report.

 Support from better-than-expected Composite and Services PMI Services data quickly faded in NY.

Has ECB President Christine Lagarde lost the plot? The ECB statement was pretty clear. It announced a 50 bp rate hike on Feb 2, and appeared to pe-announce another 50 bp hike for the March meeting. Ms Lagarde managed to turn a hawkish bias into a muddled outlook by referencing being “data dependent,” “meeting-by meeting approach,” and noting that the disinflationary process was already in play” which raised questions about the ECB’s commitment to higher rates beyond March.

GBPUSD plunged to 1.2103, post NFP, which is a long way from yesterdays peak of 1.2400.  The post-NFP speculation that the Fed will be more hawkish than expected is weighing on GBPUSD in the wake of concerns that the BoE is close to its terminal rate. 

USDJPY blew through the top of its 128.34-128.81 range after the NFP report. 

AUDUSD dropped to 0.6979 in NY after peaking at 0.7080.  The prospect of a more hawkish Fed is fueling AUDUSD selling. 

US ISM Services PMI is ahead.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix: 6.7382, Previous: 6.7130

Shanghai Shenzhen CSI 300 fell 0.95% % to 4141.63.

Caixin January Services PMI actual 52.9 (forecast 47.3, previous 48)

Chart: USDCNY 1 month

Source: Bloomberg