May 19, 2022

  • Loonie outperforms commodity bloc in risk averse environment
  • US weekly unemployment claims rise 21,000
  • US dollar and safe-havens open higher

FX change at a glance:

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2829-33, overnight range 1.2803-1.2892, previous close 1.2893

USDCAD is riding a commodity currency bloc roller-coaster, but like all amusement rides, prices ended-up close to where they started yesterday morning.

Canada’s April inflation was a hotter than expected 6.8% and current gas prices Toronto $2.09/litre) suggest an even hotter May result. The result will keep the Bank of Canada on track for a 0.50% rate hike at the June 1 meeting.

USDCAD dipped to the session low of 1.2797 following the data but quickly reversed the move as Wall Street stocks started sliding. Prices climbed throughout the session, but the rally stalled at resistance in the 1.2890-00 area.

USDCAD retreated steadily overnight and stated today’s session very close yesterday’s opening level, despite S&P 500 futures extending losses overnight. That may have been a “sympathy” rally as AUDUSD and NZDUSD traded higher.

WTI oil prices see-sawed between $106.75/barrel and $110.86/b as traders. Broad US dollar demand weighed on prices while supply concerns from the Russia/Ukraine war provided support.

StatsCanada said “new home prices for Canada showed some signs of cooling from their average increase of 1.1% in the first three months of the year, as they rose 0.3% compared with March.

Industrial Product prices rose 0.8% m/m in April due to higher energy while Raw Materials declined 2.0% m/m, the first time in three months.

USDCAD direction is at the mercy of risk sentiment as measured by S&P 500 price swings. The index fell 4.0% yesterday suggesting it is ripe for a bounce, even a dead-cat one, which at best, will leave USDCAD stuck in its recent range.

USDCAD technical outlook  

The intraday USDCAD technicals are bearish. Yesterday’s rally to 1.2894 is viewed as a correction as it halted at the downtrend line from last week. The downtrend is vulnerable as support in the 1.2800 area contained downside moves. A decisive break below 1.2800 targets 1.2680, while a move above 1.2900 suggests more 1.2800-1.3030 consolidation.

For today, USDCAD support is at 1.2790and 1.2750.  Resistance is at 1.2860 and 1.2890.  Today’s Range 1.2780-1.2860.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

There was a blood-bath on Wall Street and the gory mess splashed across asset classes. Giant retailer Target joined Walmart in reporting disappointing earnings and traders concluded that perhaps this high inflation thing may be impacting the economy.

The Dow Jones Industrial Average lost 3.57%, the S&P 500 dropped 4.04% and the NASDAQ plunged 4.73%, echoing pandemic moves. Asian equity indexes followed suit but losses in that region were not nearly as steep. Japan’s Nikkei 225 index fell 1.89% while Australia’s ASX 200 dipped 1.65%

The UK FTSE 100 is down 2.37% leading European bourses lower; S&P 500 futures are down 0.97% but are off their worst levels. Even so, it suggests a negative open for Wall Street. Gold prices rose to $1829.50 on safe-haven demand while the 10-Year Treasury yield dropped from 2.916% to 2.831% in early NY trading.

Sri Lanka formerly defaulted on its foreign debt dues to many reasons, including soaring food and energy prices. It may be a sign that history is repeating as in 1997, the Asia debt crisis roiled markets.

Weekly jobless claims rose 21,000 to 218,000 while the Philadelphia Manufacturing Index saw a 15 point drop in the diffusion index which may weigh on S&P 500 gains.

EURUSD traded in a 1.0462-1.0539 range and has almost completely recovered yesterday’s losses. Prices are dancing to the ever-shifting risk sentiment tune and are underpinned as S&P 500 futures attempt to rally. Nevertheless, the rally is just noise while the March downtrend remains intact.

GBPUSD chopped about in a 1.2340-1.2437 range with the latest gains supported by a mildly improved risk tone. The currency pair continues to be undermined by fears of rising rates and slowing growth with renewed Brexit hostilities thrown into the mix.

USDJPY dropped from 128.94 to 127.59 due to safe-haven demand for yen and lower US Treasury yields.

AUDUSD rallied from 0.6954 to 0.7022 after risk sentiment improved, while getting an added lift from the domestic employment report. Australia unemployment report was strong enough to suggest the RBA may need to raise rates more aggressively.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7524   Previous 6.7421

Shanghai Shenzhen CSI 300 rose 0.19% to 3,999.60

Chart: USDCNY 1 month

Source: Yahoo Finance