Source: Wikimedia

May 11, 2022

  • US April CPI surprises to the upside
  • US 10-year yield soars, equities sink in wake of CPI data
  • USD rebounds from overnight slide

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2960-64, overnight range 1.2956-1.3033, previous close 1.3029

USDCAD continues to stare into the abyss, then backpedal furiously. It traded in a 1.2964-1.3051 range on Tuesday, and in a similar patter overnight. As usual, domestic influences had nothing to do with the price action.

Anticipation that today’s US inflation report will show signs that inflation has peaked, fueled a steep slide in US 10-year Treasury yields since Monday’s 3.20% peak, and reinvigorated risk sentiment.

The anticipation was misguided. April CPI was higher than expected and USDCAD popped from 1.2955 to 1.3038 in the minutes following the release.

WTI oil rallied from $98.26/barrel in Asia to $104.19 in NY, then tumbled to $102.83/b after CPI.

The US Senate is doing its part to disrupt oil markets. The US Senate Committee passed a No Oil Producing and Exporting Cartels bill (NOPEC) with the aim of protecting consumers from orchestrated supply cuts by leaving Opec open to antitrust lawsuits. Opec was not amused, and the UAE oil minister predicted a 300% price increase from “ensuing chaos.

USDCAD direction will track S&P 500 prices and S&P 500 futures prices dropped sharply after the inflation data.

USDCAD technical outlook  

The intraday USDCAD technicals are flipping between bearish to bullish with the speed of a strobe light. Early morning bearish USDCAD technicals reverted to bullish with the rebound above 1.3010, shifting the focus to 1.3050.  A decisive topside breach would signal a new uptrend leg and target 1.3500.  USDCAD needs to break below 1.2850 to suggest more 1.2650-1.3050 consolidation and below 1.2500 to negate topside pressures.

For today, USDCAD support is at 1.2980 and 1.2950.  Resistance is at 1.3050 and 1.3090.  Today’s Range 1.2950-1.3050

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Today’s US inflation report changed the narrative from talk that inflation may be peaking to fears the top hasn’t been seen yet.

April CPI rose 0.3% m/m (forecast 0.2%, March 1.2%) but the annual rate dipped to 8.3% y/y from 8.5% y/y in March.

The knee jerk reactions sent the US dollar soaring, stock futures falling, and boosted the 10-year Treasury yield from 2.932% to 3.08%.

The reaction should be taken with a grain of salt. Traders were positioned for a better than expected result and are covering positions. The reality is that the monthly and year over year results are lower than they were last month which can be seen as evidence that inflation has peaked.

In Asia, risk sentiment got a boost after Chinese officials claimed the Shanghai lockdown was a success, saying transmission risks have been “effectively curbed.”  The news was good for the commodity bloc currencies.

EURUSD broke through the bottom of the overnight 1.2527-1.2575 band and dropped to 1.2503, post CPI before bouncing to 1.2528.  Prices may be getting a bit of support after a series of somewhat hawkish comments from ECB policymakers, including President Christine Lagarde. She said the ECB should end QE early in Q3, which analysts interpret to mean a rate hike is likely in July. Colleagues Luis de Guindos and Bostjan Vasle agreed. German CPI was 7.4% y/y in April, as expected.

GBPUSD traded in a 1.2279-1.2389 range with the low being made after the US inflation data. GBPUSD gains are limited due to the bleak economic outlook for the UK and the resurgence of Ireland Brexit issues.

USDJPY spiked to 130.81 following US CPI, after trading with a bearish bias in a 129.60-130.48 range overnight. Prices are closely tracking US Treasury yields. Losses may be limited due to the BoJ’s dovish monetary policy outlook.

AUDUSD and NZDUSD gave back overnight gains as risk sentiment soured when the American inflation result was worse than expected. AUDUSD ignored Westpac May Consumer Confidence data (actual -5.6% vs -0.9%).

Chart: US 10-year Treasury yield since May 9


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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7290   Previous 6.7134

Shanghai Shenzhen CSI 300 rose 1.44% to 3,976.42

April CPI 0.4% m/m (March 0%), CPI 2.1% y/y (March 1.5%), April PPI 8.0%y/y (March 8.3%)

Government officials claim that transmission risks from latest COVID 19 outbreak in Shanghai have been “effectively curbed.”

Chart: USDCNY 1 month

Source: Yahoo Finance