June 23, 2021

Wall Street bows to Powell’s inflation view- global equities-not so much

Canada Retail Sales drop more than expected (-5.7% vs forecast -5.0%)

US dollar opens lower, led by commodity currency rally

USDCAD open 1.2294-98, Overnight range 1.2268-1.2327,  Previous close 1.2306

FX at a Glance

FX Recap and outlook

Traders may be slow, but they are not stupid.  Wall Street reacted to Fed Chair Powell’s repeated message that inflation increases will be transitory.  Traders thumped their foreheads, muttering, “You mean it’s temporary, and it’s not going to last.”

Then they acted.

The NASDAQ, which closed at a record high, led US stocks, and commodities higher, while driving the US dollar lower.

 The euphoria didn’t travel well.   Chinese indexes inched higher, Australia’s ASX 200 slipped, and Japan’s Nikkei 225 closed flat.  European bourses are lower, led by a 0.44% dip in Germany’s DAX index.  However, oil and gold prices are higher, and 10-year Treasury yields are steady at 1.475%.  S&P 500 futures are flat.

The US poked China with a Navy stick.  The USS Curtis Wilbur, a guided-missile destroyer, cruised the Taiwan Strait, which Beijing called a “risk creator.” Traders dismissed the news as another sandbox spat.

EURUSD dropped to 1.1913 in Asia possibly because Asia traders were not impressed with Powell’s repeated comments, and the thought of two US rate hikes weighed on the single currency.  However, things turned around in Europe with better than expected Eurozone PMI data and upbeat comments from ECB policymaker Luis de Guindos lifting EURUSD to  1.1954 in NY trading.

GBPUSD has caught a bid ahead of tomorrow’s Bank of England monetary policy meeting.  GBPUSD rallied from an Asia low of 1.3925 to 1.3992 in NY. With traders dismissing UK PMI data.  Some analysts anticipate that the BoE will follow the Fed’s lead and adopt a hawkish bias which is supporting prices.  For today, GBPUSD is supported above 1.3930.

USDJPY rallied on the improved risk tone.   The Bank of Japan meeting minutes did not offer anything new.

AUDUSD traded choppily.  Prices dropped from 0.7555 to 0.7539 due to disappointing Manufacturing and Services PMI data.  Prices rallied to 0.7584 in NY, with a Commonwealth Bank of Australia forecast of RBA rate hikes starting in 2022, underpinning prices.

USDCAD tracked the antipodean currency price action and started today’s NY session at the bottom of the overnight range. Prices continued to drift lower in NY, in line with broad US dollar weakness and higher oil prices undermining the currency pair.  WTI climbed from $72.82/barrel to $73.54, after the American Petroleum Institute (API) reported US crude inventories fell 7.2 million barrels in the week ending Jun 18.

Canada April Retail Sales fell 5.7% m/m in April.  The result was a tad worse than the 5.0% m/m decline expected but since the drop was due to the third-wave CVOID-19 outbreak, the results were ignored.

Today’s US data includes Markit PMI, which is usually ignored in favor of ISM PMI.

USDCAD technical outlook

USDCAD has been in a steep decline following its failure to break above the downtrend line at 1.2500, and within spitting distance of the June 14 uptrend line at 1.2260.  A move below 1.2260 will extend losses to 1.2150, and erase the “hawkish FOMC” rally.  For today, USDCAD support is at 1.2260 and 1.2160.  Resistance is at 1.2320 and 1.2400.   Today’s range 1.2240-1.2320

Chart USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank