May 24, 2022

  • Hawkish comments from ECB Lagarde sends EURUSD soaring
  • Risk sentiment flip-flops, partly due to muddled message from Biden
  • US dollar opens with losses across the board-EUR outperforms

FX change at a glance: Friday-Monday NY open

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2800-04, overnight range (includes Monday 1.2768-1.2840, Friday close 1.2839, Monday close 1.2771

USDCAD fell at the Asia open yesterday, dropping from 1.2840 to 1.2769, and then consolidated those losses in a 1.2768-1.2811 range until today’s NY open.

Domestic issues had nothing to do with USDCAD price action. The moves were driven by shifting risk sentiment in Asia and Europe. President Biden mumbled about removing some tariffs on China which boosted risk sentiment, but his musings about defending Taiwan unnerved traders.

USDCAD traders ignored comments by former BoC Governor Stephen Poloz. He suggested the BoC should consider a period of “technical stagflation” rather than raising interest rates really fast which could trigger a major slowdown or recession.

USDCAD remains pressured by WTI oil prices which are steady in a $108.63-$111.90/b range. Oil prices are underpinned by reports the EU will agree to a complete ban of Russian oil, with the German Oil Minister adding, “with or without” Hungary’s cooperation.

There are no Canadian economic reports of note until Thursday’s March Retail Sales data.

USDCAD technical outlook  

The USDCAD technicals are bearish below 1.2830, looking for a move below 1.2760 to extend losses to 1.2670, then 1.2570. A move above 1.2840 would negate the downtrend and suggest further gains to 1.2900

For today, USDCAD support is at 1.2760 and 1.2710.  Resistance is at 1.2840 and 1.2880.  Today’s Range 1.2760-1.2830

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Presidents demonstrating early-onset dementia should only be seen, never heard. Case-in-point, Joe Biden. Whitehouse staffers said, “WTF?” before shifting into damage control after Mr Biden implied the US military would intervene to defend Taiwan. Ooops, sorry China, it was just a senior’s moment-maybe.”  Those comments roiled Asia markets yesterday but were offset by reports the US would review Chinese tariffs.

The US rate hike debate continues. Atlanta Fed President Raphael Bostic opined that “pausing rate hikes in September may make sense,” while colleague Ester George suggested there were many factors in play which could relieve or intensive inflation.

EURUSD soared, rising from 1.0662 to 1.0735 after ECB President Christine Lagarde turned hawkish. In a blog post on Monday, she wrote the ECB would “likely be in a position to exit negative rates by September, suggesting two 0.25% increases. France Central Bank Governor Francois Villeroy agrees saying “A 50 basis-point hike is not part of the consensus at this point, I am clear. It will be a normalization of our monetary policy, it’s not a tightening.”  The EURUSD rally is a correction and not a trend change unless prices decisively break above 1.0850.

GBPUSD rallied Monday and retreated overnight, trading in a 1.2477-1.2597 range. Prices dropped from the peak today after UK Manufacturing and Services PMI reports were weaker than expected. Traders fear the UK economy is closer to a recession than previously expected. The GBPUSD downtrend from February is intact below 1.2800.

USDJPY continued to consolidate its gains since March, trading in a 127.09-128.08 range. Prices are depressed after the US 10-year Treasury yield fell from 2.873% to 2.797% on Friday then couldn’t sustain a rally to 2.87% yesterday.

NZDUSD is near the bottom of its Monday-Tuesday range of 0.6425-0.6485 with traders awaiting the RBNZ decision on Tuesday. The RBNZ is expected to raise its Overnight Cash Rate (OCR) to 2.0%, a 0.50% increase.

US New Home Sales data and Fed Chair Powell’s speech are ahead.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.6566, Monday 6.6756, Friday 6.7524

Shanghai Shenzhen CSI 300 fell 2.34% to 3,959.15

Stocks suffered following growth forecast downgrades from a few major banks.

US reportedly discussing reducing some tariffs

Chart: USDCNY 1 month

Source: Yahoo Finance