Source: Pixabay

July 6, 2021

Oil prices climb to a 6 year peak

German and EU data mixed to positive

US dollar opens with modest gains except against AUD and NZD

USDCAD open 1.2353-57,  Overnight range,  1.2305-1.2362,  Previous close 1.2341

FX at a Glance

FX Recap and outlook

Global markets adjusted to last Friday’s US employment report, which nicely balanced economic growth momentum and Fed tapering pressures.  Now Opec is raining on the parade.  The cartel wants to raise crude output by 2 million barrels per day from August to December but extend the remaining cuts to the end of 2022.  The United Arab Emirates (UAE) adamantly opposes the extension.  The talks ended yesterday, which means the planned August production hike may not occur.

Oil prices rose, climbing from $75.00 to $76.95, before dipping to $75.81 in NY, as traders anticipate increased demand and tighter supply as global economies reopen.  Global equity indexes wobbled as traders considered the inflationary impact of higher oil prices.  The major Euro area equity indexes are trading in the red, while Wall Street futures are flat.  Bond traders are indifferent. US 10-year Treasury yields are 1.413%.  No inflation pressures there.

EURUSD traded in a 1.1832-1.1894 range, peaking in Asia and bottoming out in Europe.  Weaker-than expected-German June factory orders (actual -3.7% m/m) drove the single currency lower. Still, news the May results were revised 1.4% higher, combined with forecast-beating Eurozone Retail Sales, provided some support.  EURUSD needs to break above 1.1900 or risk a drop to 1.1700.

GBPUSD rose to 1.3897 in Asia, then dropped to 1.3836 in Europe, to open at 1.3845, after broad US dollar weakness turned into US dollar demand.  UK  data and the governments plan to fully reopen the economy by July 19 underpinned prices (Construction  PMI was 66 in June vs 64.2 in May).  However, fresh inflation concerns from the oil price surge weighed on prices.

USDJPY is trading at the bottom of its 110.61-110.96 range, in part due to soft US 10-year Treasury yields.

AUDUSD dipped then rallied after the RBA monetary policy decision.  The RBA is tapering QE purchases to $4.0 billion/week from $5.0 billion. However, Governor Lowe said, “I want to re-emphasise the point that the condition for an increase in the cash rate depends upon the data, not the date; it is based on inflation outcomes, not the calendar.”

NZDUSD jumped to 0.7104 from 0.7024, tracking broad AUDUSD moves but getting an added boost from better than expected Business Confidence data.  ASB Bank and Bank of New Zealand are now forecasting the RBNZ will hike rates in November 2021.

USDCAD dipped, climbed, and opened virtually unchanged. The surge in oil prices helped to cap the rally while oil-induced inflation fears underpinned USDCAD. Yesterday’s BoC Business Outlook Survey was positive, and could mean a hawkish tilt at next week’s monetary policy meeting.

Traders are hoping that the FOMC minutes released tomorrow afternoon will provide some further insight into the Feds hawkish shift.

US ISM Services PMI (forecast 63.5) is due.

USDCAD technical outlook

The long term USDCAD technicals are bearish below 1.2500, a level representing the downtrend line from March 2020, and previous support from April 2018. Meanwhile, the intraday technicals are modestly bearish while prices are below 1.2380, looking for a move below 1.2300 to test 1.2250.  For today, USDCAD support is at 1.2310 and 1.2280. Resistance is at 1.2380 and 1.2420   Today’s range 1.2320-1.2390

Chart USDCAD weekly

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank