Source:  YouTube

January 11, 2022

  • Fed Chair Powell confirmation hearing today
  • Global equity markets yo-yo
  • US dollar opens defensively

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot: Open 1.2639-43, Overnight Range-1.2633-1.2675, previous close 1.2680

Yesterday, USDCAD fully recovered early morning losses when Wall Street stocks tumbled, then retreated from intraday peak when equities rebounded into the close.  USDCAD slid steadily overnight as global equities, and oil climbed, while Treasury yields dipped.

USDCAD continues to be undermined by last Friday’s better than expected Canadian employment report data, although the latest Omicron restrictions suggest those gains will be reversed in the next report.

Firming oil prices are also weighing on USDCAD.  WTI climbed from $78.40/barrel to $79.64/b overnight, supported by supply issues.  Opec production increases have been less than expected due to production issues in some countries.  Omicron outbreaks have not as been as harmful to global growth as expected earlier.

The US CDC warned American’s not to travel to Canada because of rising COVID-19 cases. The US, with roughly 10 times the population of Canada reported 737,415 new cases yesterday.  Canada reported 45,420. Obviously, the CDC was trying to protect vulnerable Canadian’s from a horde of disease-ridden Yankee tourists.

USDCAD direction will be determined by Fed Chair Powell’s answers at today’s confirmation hearing.

Technical view:  The USDCAD technicals are bearish below 1.2705 looking for a break of support in the 1.2590-1.2610 area to extend losses to 1.2500.  A move above 1.2710 suggests further gains to 1.2850.

Longer term, USDCAD’s failure to break above the 1.2980-1.3030 zone, reinforced that major resistance area and set the stage for a move lower.  USDCAD is supported by the 100-day moving average (1.2624) and the 200-day (1.2499). A decisive move below the latter would target the May June 2021 low of 1.2020.

For today, USDCAD support is at 1.2610 and 1.2590.  Resistance is at 1.2670 and 1.2710.  Today’s Range 1.2610-1.2710

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The US dollar opens in NY on a cautious note ahead of Fed Chair Jerome Powel’s confirmation hearing.  Mr Powell’s opening statement was released yesterday evening.  He said, “Today the economy is expanding at its fastest pace in many years, and the labor market is strong.  The economy has rapidly gained strength despite the ongoing pandemic, giving rise to persistent supply and demand imbalances and bottlenecks, and thus to elevated inflation.  We will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”

Nothing new there.

However, it will be Mr Powell’s answers to questions that will drive market action, and it wouldn’t be a stretch to believe a Senator will have how high interest rates will go.

Atlanta Fed President Raphael Bostic predicts three rate hikes in 2022 with the risk of a fourth, while Richmond Fed President Thomas Barkin said he agreed with the outlook for a March rate hike.

The US/NATO and Russia meeting ended with reports the Kremlin said it did not see any reason for optimism.

Asia equity indexes closed with losses across the board.  Japan’s Nikkei 225 lost 0.90%, and Australia’s ASX 200 dropped 0.70%.

European bourses are in positive territory, led by a 1.05% rise in Germany’s DAX index, and Wall Street futures suggest a positive open.  Gold and oil prices are higher, while the US 10-year Treasury yield dipped to 1.753%.

EURUSD bounced between 1.1325-1.1351.  ECB President Christine Lagarde repeated her view that rising inflation is temporary and said, “people can trust that our commitment to price stability is unwavering, which is critical for the firm anchoring of inflation expectations and for confidence in the currency.”  EURUSD remains in a 1.1200-1.1400 band with a negative bias.

GBPUSD broke the October downtrend in December with a move above 1.3330 and has been climbing since.

Prices are supported by the lack of harsh restrictions from the Omicron outbreak and the prospect of higher UK rates, which is also driving EURGBP selling.  A break above 1.3630 targets 1.3700.

USDJPY traded in a 115.13-115.45 range, with S&P 500 price action appearing to displace US 10-year yields as the main factor driving currency moves.

AUDUSD traded in a 0.7170-0.7195 range and are modestly bullish above 0.7130.  Australia November Retail Sales surged 7.3% m/m compared to 4.9% in October, which helped underpin prices.

The US and Canadian economic calendars are empty.

Chart of the Day:  USDJPY and S&P 500 (hourly chart)

Source:  Saxo Bank

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3684, previous 6.3653

Shanghai Shenzhen CSI 300 fell 0.96% to 4,797.77

China tightening lockdowns rules in city of Tianjin and in Henan province capital of Zhenzhou.

Hong Kong will ban transit passengers from 150 places starting January 15.  Those travelling to Beijing Olympics are excluded.

Chart:  USDCNY 1 month

Source: Yahoo Finance