Photo: Bing AI
October 20, 2023
- Canada August Retail sales fall 0.1% m/m
- Market focus shifts from rates to geopolitics.
- US dollar suffering from profit-taking.
FX at a Glance
USDCAD Snapshot: open: 1.3693-97, range 1.3683-1.3735, close 1.3720
USDCAD failed to make headway above 1.3750 resistance yesterday and is consolidating this week’s gains in a 1.3650-1.3750 range. The rally could resume today if Canadian Retail Sales numbers are weaker than expected and if developments in the Middle East raise global risk aversion.
Canada retail sales fell 0.1% (forecast -0.3% m/m) mainly due to lower sales of Motor vehicles and parts. Core-Retail Sales fell 03.% m/m. Statistics Canada is predicting September Retail Sales will be unchanged.
Traders are looking ahead to next week’s monetary policy decision when the BoC is expected to leave interest rates unchanged. The BoC will likely follow Fed Powell’s lead and suggest they are balancing the risks between tightening too much or not enough and future decisions will be data dependent.
Fears that an expanding Middle East conflict will disrupt oil supplies has lifted WTI prices from $88.89 to $89.84/b.
The USDCAD technicals are bullish above the 1.3640-50 area, which is the uptrend line from last week and which is being guarded by minor support at 1.3660. A topside break of 1.3750 will extend gains to 1.3800.
Longer term, USDCAD is trapped in its October 1.3550-1.3800 range with a break either side setting up the next 200 point move.
For today, USDCAD support is at 1.3660 and 1.3630. Resistance is at 1.3750 and 1.3790. Todays Range 1.3660-1.3750
Chart: USDCAD 4 hour
G-10 FX recap
Fed Chair Jerome Powell was in the spotlight yesterday. The market’s conclusion seems to be that Mr. Powell took a November rate hike off the table. Analysts are suggesting that he agrees with many of his colleagues who suggest that the bond market was doing the Fed’s work as rising yields reduce the need for the Fed to hike. He obviously does, as he said, “Financial conditions have tightened significantly in recent months, and longer-term bond yields have been an important driving factor in this tightening.”
Traders reacted as if Mr. Powell had announced no more rate hikes. He didn’t, but Wall Street rallied, and the US dollar retreated. The move didn’t last, which suggests traders were positioned for a hawkish outcome. Once those positions were cut, they realized not a lot had changed.
Mr. Powell repeated that he is taking a cautious approach. However, he emphasized the risks of doing too little in terms of tightening and of the potential need for further tightening if necessitated by incoming data, leaving the door open for another rate hike.
Overnight, traders shifted their focus from US interest rates to geopolitical tensions. They are not happy. Hezbollah, the US-designated terrorist group, and de facto rulers of Lebanon are threatening Israel’s Northern border, raising fears that the Israel-Hamas war is widening to include other Arab nations. The religious zealots ruling Iran are the common denominator. The US Navy shot down three missiles fired from Yemen by Iranian-backed Houthi rebels, which were heading to Israel.
Asian equity indexes lost ground, with Japan’s Nikkei 225 index down 0.54%, while Australia’s ASX 200 lost 1.16%. European bourses are in the red, led by a 1.24% drop in the German Dax, and S&P 500 futures are pointing to a negative open on Wall Street today.
Traders shifted their focus from US interest rates to geopolitical tensions and were not happy. Hezbollah, the US-designated terrorist group, and de facto rulers of Lebanon are threatening Israel’s Northern border, raising fears that the Israel-Hamas war is widening to include other Arab nations. The religious zealots ruling Iran are the common denominator.
The US dollar index dropped on the heels of Powell’s speech but quickly recovered overnight, supported by haven demand and the US 10-year Treasury yield recouping overnight losses and trading at 4.977% in NY.
EURUSD squeezed higher in a 1.0565-1.0585 range, garnering a modicum of support from US dollar weakness, post-Powell speech. Today’s direction will be determined solely by US dollar moves, although bearish technicals in the 1.0600-10 area should cap gains.
GBPUSD is stuck inside yesterday’s range and traded in a 1.2093-1.2146 range. Sentiment was mostly bearish thanks to the GfK Consumer Confidence Inde falling nine points in October and a weak October Retail sales report. An economist at Capital Economics, Alex Kerr said, “the 0.9% m/m fall in retail sales volumes in September meant sales volumes fell 0.8% q/q in Q3 and suggests that after the 18-month-long retail recession came to an end in Q1, the sector may already be back in recession.
USDJPY traders are waving a red flag in front of the bull that is the Bank of Japan. Prices inched higher, rising from 149.66 to 150.04 in NY today, mainly due to the elevated US Treasury yield, which continues to flirt with 5.00%.
AUDUSD traded negatively in a 0.6298-0.6332 band due to broad US dollar strength and ongoing Chinese growth concerns.
There are no top-tier US economic reports released today.
FX high, low, open
PBoC fix: today 7.1793, expected 7.3055, previous 7.1795.
Shanghai Shenzhen CSI 300 fell 0.65% to 3510.59.
China left 1-year and 5-year Loan Prime Rate unchanged at 3.45% and 4.20%, as expected. Meanwhile the PBoC injected $100.2 billion into the system to help keep financial market funding costs low.
Chart: USDCNY (onshore) vs USDCNH (offshore)