Source: Wikimedia

June 16, 2022

  • US equity futures crater overnight
  • Bank of England hikes a tepid 0.25%
  • US dollar ends choppy overnight session modestly lower. EUR underperforms

FX change at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2932-36, overnight range 1.2863-1.2957, close 1.2892

USDCAD churned and burned since the FOMC meeting. Prices climbed to 1.2992 then dived to 1.2863 during Fed Chair Powell’s press conference, then inched higher overnight.

USDCAD was underpinned after CAD/US 10-year interest rate spreads narrowed sharply, erasing almost all of the Canadian advantage. That will change as the BoC is almost guaranteed to raise interest rates by 0.75 bps at the July 13 meeting.

USDCAD was also bolstered by sliding WTI oil prices which dropped from $116.93/barrel to $113.91/b. Prices slid on increased risks of a recession following the Fed rate hike, which suggests oil demand would fall. That assumption is a little dodgy due to supply constraints from Russian oil sanctions.

As usual, USDCAD direction will track S&P 500 moves.

USDCAD technical outlook

The intraday USDCAD technicals are bullish above 1.2860, which is the steep uptrend line from June 8, and previous tops and bottom stretching into May. A break above 1.3000 extends gains to 1.3050, then 1.3240. A move below 1.2860 suggests a retest of 1.2750 support.

For today, USDCAD support is at 1.2890and 1.2860. Resistance is at 1.2960 and 1.3000.  Today’s Range 1.2880-1.2960

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Fed Chair Jerome Powell bowed to bond market pressure and hiked the fed funds rate by 0.75%. It is being hailed as a “big, bold move” because the last time a hike of that magnitude occurred was in November 1994.

The reality is that the hike is neither “big” nor “bold.”   All it managed was to raise rates to its January 2020 pre-pandemic level, and at 1.50%-1.75% is below the Fed’s estimate of the neutral rate which is 2.4%.

Initially, Wall Street was happy, and the major indexes rallied. The S&P 500 closed 1.46% higher at 3790. That gain evaporated overnight, with SP500 futures dropping from an Asia peak of 3828 to 3693, before inching back to 3708 in early NY trading.

European stocks cratered in a move exacerbated when the Swiss National Bank surprised markets with a 0.50 rate hike. The SNB said the hike was needed to counter inflationary pressures. The German Dax is down 2.89%.

WTI oil prices are sharply lower compared to Wednesday while gold prices slipped to$1820.00 in NY. The 10-year Treasury yield rode a roller-coaster overnight and is trading at the top of its 3.33%-3.44% range.

US weekly jobless claims were unchanged while the Housing Starts and Philadelphia Fed Manufacturing Survey data were lower than expected.  The news had limited impact as traders are still digesting the FOMC decision.

EURUSD traded like the proverbial headless chicken in a 1.0382-1.0469 range. The single currency soared from 1.0424 in Asia yesterday to 1.0503 on the ECB emergency meeting news. However, instead of concrete policy action, the ECB issued a statement blathering on about developing a new tool to support troubled bond markets.

ECB policymakers Francois Villeroy and Luis de Guindos reiterated their desire to bring inflation to target. More talk, no action.

GBPUSD tumbled from 1.2170 to 1.2043 after traders were disappointed by the Bank of England’s tepid 0.25% rate hike. Traders expected a more robust response after the Fed’s larger-than-expected rate increase and the SNB’s surprise rate hikes. The hike was not unanimous as three policymakers dissented. They wanted a 0.50 bp hike.

USDJPY dropped from 134.89 ahead of FOMC to 132.33 just before NY opened. Traders reacted to the rebound in US Treasury yields and concerns ahead of the Bank of Japan monetary policy meeting on June 17. Many analysts believe the BoJ will need to amend its yield curve control policy in response to the latest Fed action. A move below 132.40 would extend losses to 130.00.

AUDUSD bobbed and weaved in a choppy 0.6952-0.7034 range. Prices were buffeted by US dollar reaction to the Fed and by robust Australian economic data. Australia added 60,600 new jobs (forecast 25,000) and the unemployment rate dipped to 3.8% from 3.9%.

NZDUSD tracked AUDUSD moves.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.7099, Previous 6.7518

Shanghai Shenzhen CSI 300 fell 0.66% to 4,250.06, Previous close 4,278.22

Chart: USDCNY 1 month

Source: Yahoo Finance