November 15, 2024

• Powell sounds hawkish.
• Retail Sales rise 0.4% m/m (forecast 0.3%)
• US dollar rallies, then pauses.

FX at a Glance

Source: IFXA/RP

USDCAD open 1.4043,  overnight range,1.4038-1.4072 close 1.4062

USDCAD is happily trading above 1.4000 which suggests the former ceiling will become a floor. Traders were not impressed with Fed Chair Powell’s comments yesterday reaffirming a slow and steady pace to rate cuts.  The US dollar rallied across the board and USDCAD went along for the ride.

Fun fact: USCAD was trading at 1.4065 on March 6, 1985, the day Mike Tyson won his first professional fight. Thirty-nine years later, USDCAD is 1.4040 and Mike Tyson is entering the ring for his 60^th professional fight.

USDCAD is also supported because the Canadian economy is a basket case compared to the US economy which is chugging higher.  The gap between Canadian and US growth is expected to widen in 2025.  The gap will widen under the Trump administration to about 50% according to the Financial Post.  

Option expiries at may dictate today’s trading range. $705 million of 1.4000 strikes, $215 million of 1.4050 strikes and $1.0 billion of 1.4065-70 strikes expire at 10: am.

Wholesale Sales reversed last months fall and rise 0.8% m/m while Manufacturing Sales fall 0.5% compared to -1.3% in August.

USDCAD Technicals

The intraday USDCAD technicals are bullish above 1.4010 and looking for a break above 1.4070 to extend gains to 1.4120.  A break below 1.4000 would target 1.3960.

Longer term, USDCAD is heading for 1.4620, which represents the 78.6% Fibonacci retracement level of the 2002-2007 range on a monthly chart. However the 1.4060-70 zone has capped all rallies since 2016. Furthermore, the uptrend line from May 2021 comes into play in the 1.3440-50 zone.

For today, USDCAD support is 1.3990 and 1.3940. Resistance is 1.4060 and 1.4090

Today’s Range 1.3970-1.4060.

Chart: USDCAD daily

Source: Oanda.com

What’s the Hurry?

Yesterday, Fed Chair Jerome Powell said, “The economy is not sending any signals that we need to be in a hurry to lower rates.” That was not a message equity traders wanted to hear, and the major US indexes closed with losses. The odds of another 25 bp FOMC rate cut in December fell from around 88% to 58.7% by the end of the day.

Working for the Weekend

The US dollar and equities have had a pretty good run this week, suggesting that banking some profits may be in order.  US Retail Sales data rose 0.4% (forecast 0.3%)  and the September results were revised higher. The stronger than expected results support Powell’s cautious outlook for US rates.

EURUSD

EURUSD traded in a 1.0524-1.0581 range and is at the top of that band in NY. The rise is due in part to profit-taking and the unwinding of some oversold positions, but gains are limited. Euro area data was not a factor.

GBPUSD

GBPUSD rallied from 1.2649 to 1.26697 despite weaker-than-expected data, including Q3 GDP, which rose just 0.1% q/q compared to the forecast for a 0.2% rise. Industrial Production and Manufacturing Production data also missed forecasts. Yesterday, Bank of England Governor Andrew Bailey advocated rebuilding EU relations—Brenter, anyone?

USDJPY

USDJPY dropped from 156.75 to 155.22 before climbing to 155.55 in NY. Better-than-expected Japanese Q3 GDP (actual 0.9% y/y, forecast 0.7%, previous 2.2%) supported the sell-off, which became more aggressive after verbal intervention from Japan’s Finance Minister Kato encouraged pre-weekend profit-taking.

AUDUSD and NZDUSD

AUDUSD inched higher, rising in a 0.6445-0.6480 range after mixed Chinese economic data and a modest, broad-based retreat in the US dollar. NZDUSD followed suit and traded in a 0.5840-0.5877 range. Direction for both currency pairs continues to be determined by the outlook for Fed rates and concern about the incoming Trump administration.

USDMXN

USDMXN traded lower in a 20.3514-20.5104 range overnight. The Bank of Mexico (Banxico) cut interest rates by 25 bps to 10.25%, which was widely expected. The statement suggested further cuts were in the pipeline due to expectations for inflation to keep falling.

BTCUSD (Bitcoin)

BTCUSD dropped from 91,283 yesterday to 86,693 overnight before rebounding to 89,833 in NY. The sell-off was sparked by Powell’s comments, but analysts believe BTCUSD dips are for buying, thanks to crypto-friendly Trump.

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

Source: Investing.com

China Snapshot

PBoC fix:  7.1992 vs exp. 7.2482, prev. 7.1966

Shanghai Shenzhen CSI 300 fell 1.75% to 3968.83.

China October Retail Sales (actual 4.8% y/y, forecast 3.8%, previous 3.2%). Industrial Production 5.3% vs 5.4% previously.

The PBoC injected a massive CNY 981.0 billion via 7-day repo’s. It was meant to address short-term funding strains due to maturing loans and to demonstrate that the PBoC is maintaining an accommodative monetary policy stance.

Chart: USDCNY and USDCNH

Source: Investing.com