February 5, 2024

  • Powell suggests longer wait for rate cuts.
  • Oil prices ignore increased Middle East strife.
  • US dollar extending Friday gains..

FX at a glance

Source: IFXA

USDCAD Snapshot: open 1.3487-91, overnight range 1.3460-1.3493, close 1.3461.

USDCAD is at the top of its overnight range as it adds to Friday’s post-NFP losses. The gains were supported by the CAD/US two-year yield spreads moving in favor of the US dollar, and by soft oil prices.

Oil prices cannot get any upward traction despite the US and UK intensifying attacks in Yemen, Iran promising revenge, and OPEC maintaining production cuts. WTI dropped following the US dollar rally, post-NFP, then traded sideways in a $71.53-$72.97 range overnight. US oil production remains at elevated levels, and that is also serving to offset OPEC production cuts.

USDCAD is likely to consolidate its recent gains below 1.3550 as part of the reason for the strong rally was the unwinding of short USDCAD positions, which should mostly be over.

USDCAD Technicals:

USDCAD turned bullish with the break above 1.3440 (hourly chart) and 1.3448 (100 day moving average) while a decisive breech of 1.3490 will extend gains to resistance in the 1.3540-1.3550  zone.  That level has capped rallies since mid-January.

The 50% Fibonacci retracement of the November-December range sis 1.3550, which should add another layer of topside resistance.

For today, USDCAD support is at 1.3440 and 1.3410. Resistance is at 1.3510and 1.3550. Today’s range is 1.3460-1.3550.

Chart: USDCAD 4 daily

Source: Investing.com           

G-10 FX recap

If Fed Chair Jerome Powell coined one of Nike’s famous taglines, it would be “Let’s Not Do It!” Mr. Powell was interviewed on “60 Minutes,” where he said that the Fed has turned its focus from whether to cut rates to when to cut rates, which is not now and maybe not in May either. And the interview was taped on Thursday, the day before the nonfarm payrolls report was more bullish than the most optimistic forecasts.

Mr. Powell said, “There is no easy, simple, obvious path,” which suggests that the data-dependent Fed doesn’t believe the data that it is depending on.

The US dollar is in demand due to the NFP data, Powell’s comments, and by escalating hostilities in the Middle East. The UK and US bombed targets in Yemen for three days in a row, and they have indicated that they are not finished. Perhaps it’s an attempt to give Saudi Arabia a Red Sea waterfront.

Wall Street shrugged off the anticipated Fed rate cut delay, and the S&P 500 closed with a 1.07% gain. Asian equity indexes closed with Japan’s Nikkei 225 rising 0.54% while Australia’s ASX 200 fell 0.96%. The UK FTSE 100 index is up 0.22% while the rest are close to unchanged. SP500 futures are down 0.18%.

Gold and bond traders were very unhappy with the prospect of US rates remaining unchanged for longer. XAUUSD dropped $12.20 from Friday’s close, while the US 10-year Treasury yield surged from a Friday low of 3.88% to 4.092% today.

EURUSD closed at 1.0788 on Friday and has fallen to 1.0743 in NY today. Eurozone and German PMI reports were ignored.  The data continued to show that the economies were in the contraction zone. A decisive break below 1.0740 will turn the short term technicals negative.

GBPUSD has a bearish bias in a 1.2582-1.2644 range. Powells 60 minutes interview and the strong NFP report suggest US rates will remain at elevated levels for longer than expected. Even better than expected PMI data didn’t help much.  

USDJPY is still bid following Friday’s gains and it traded in a 148.27-148.82 range overnight. The NFP report overshadowed the January 31 BoJ summary which signalled officials were considering when to raise rates.

AUDUSD is still licking its wounds following its Friday losses falling the hotter than hot NFP report.  AUDUSD traded in a 0.6486-0.6521 range overnight after peaking at 0.6611 on Friday. The move flipped The short-term technical picture is negative  while below 0.6550. The RBA is fully expected to leave rates at 4.35% tomorrow.  NZDUSD traded in a 0.6048-0.6083 range with New Zealand markets closed for a holiday.

USDMXN traded in a 17.0430-17.1988 range since Friday and remains in a downtrend (weekly chart) while prices are below 17.2800. Banxico meets on Thursday, and an overwhelming number of analysts expect rates to be left unchanged at 11.25%. Any hopes for a Q1 or even Q2 rate cut evaporated with Powell’s comments and the hot US employment report.

US data includes ISM Services January PMI (forecast 52, previous 50.6)

Chart of the day-USDMXN

Source: Investing.com

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: today 7.1070, expected 7.2088, previous 7.1006.

Shanghai Shenzhen CSI 300 rose 0.65%  to 3200.42.

Caixin January Services PMI (actual 52.7, previous 52.9), Composite PMI (actual 52.5, previous 52.6)

Chinese regulatory authorities are getting nervous as investors grow angrier and angrier. They promised to prevent more abnormal fluctuations, guide more long term funds into the market and crack down on illegal or malicious short selling.  They didn’t say anything about stopping Xi Jinping from throwing business leaders in jail.

Chart: USDCNY and USDCNH 4 hour

Source: Investing.com