February 29, 2024
- Core-PCE disappoints and only rises as expected.
- Canadian economy weaker than expected.
- US dollar is uninspired after US data.
FX at a Glance
Source: IFXA/RP
USDCAD Snapshot: open 1.3577-81, overnight range 1.3570-1.3598, close 1.3577
USDCAD experienced a bit of “lunch-bag letdown” even though it is still breakfast for many. Traders were primed for the possibility of stronger than expected December GDP growth. It didn’t happen December GDP was flat, compared to the 0.2% that was forecast.
The domestic results were overshadowed by the US data which was largely as expected.
WTI oil traded in a $77.97-$78.70 range supported by news that new US sanctions on Russia’s state-owned oil shipper, Sovocomflot, will make it difficult for India to purchase discounted Russian crude. However, gains were slowed by the EIA report that US inventories rose by 4 2 million barrels last week.
Arguably, the lack of sticker shock from todays US and Canadian results, (particularly the US) and the momentum studies suggesting USDCAD is overbought, suggests risk/reward favours selling at current levels with a stop loss above 1.3620.
USDCAD Technicals
The USDCAD technicals are bullish above 1.3480, (daily chart) and looking for a looking for a decisive break above resistance in the 1.3620-1.3630 area to extend gains to shift the focus to November’s 1.3895 peak.
Fibonacci retracement of the November-January range suggests that a breach of the 61.8% retracement level of 1.3627 see further gains to the 78.6% Fibonacci level of 1.3750
For today, USDCAD support is at 1.3540 and 1.3510. Resistance is at 1.3620 and 1.3650. Today’s range is 1.3540-1.3640
Chart: USDCAD daily
Source: Daily FX
G-10 FX recap
The pump was primed and just waiting for US PCE to unleash a gusher but all they got was a dry oil.
The highly anticipated US Core PCE data failed to live up to expectations. Traders anticipated an above consensus result but instead January Core PCE rose just 0.3%, exactly as forecast and just a tick above December’s 0.2% result. In addition, weekly jobless claims rose 13,000 to 215,000. The data did nothing to alter the FOMC’s monetary policy outlook.
Yesterday NY Fed President John Williams said “Three interest rate cuts in 2024 is reasonable,” which is what the December Summary of Economic Projections suggested.
The US 10-year Treasury yield r dropped to its overnight low of 4.262% from a pre-data peak of o 4.317%.
EURUSD chopped in a 1.0826-1.0855 range. Eurozone and German data was mostly ignored. German Retail Sales fell 0.4% m/m in January (forecast 0.5% m/m), while unemployment rose to 5.9% from 5.8% y/y. French inflation was a little warmer, while Spanish inflation cooled somewhat. Traders ultimately decided that the upcoming US data was far more important.
GBPUSD traded quietly in a 1.2652-1.2675 range. BoE policymaker Catherine Mann appears to be blaming consumers for the slow decline in inflation. She said, “There is not a lot of consumer discipline on a large enough fraction of categories of services to represent active deceleration in services price inflation.”
USDJPY dropped from 150.79 to 149.62 after BoJ board member Hajime Takata renewed rate hike risks. He said, “There are uncertainties for Japan’s economy, but my view is that the price target is finally coming into sight” and is “at a juncture for a shift in the entrenched belief that wages and inflation won’t rise.”
AUDUSD is near the top of its 0.6491-0.6522 range, with Wednesday’s inflation data still weighing on prices. The lower-than-expected result led to a September rate cut being fully priced in.
NZDUSD traded narrowly in a 0.6089-0.6117 range as prices consolidate losses following the somewhat dovish tilt by the RBNZ on Tuesday. Governor Adrian Orr justified standing pat by saying, “The data has presented a lot of confirmation that inflation has and is continuing to decline.”
USDMXN rose then fell inside a 17.0735-17.1145 range, with price action muted ahead of today’s Core-PCE data and Mexico’s jobless rate (forecast 2.8% vs. December 2.6%). Banxico’s Quarterly Inflation Report is cautiously optimistic that the disinflationary process will continue but erratically.
BTCUSD is trading in a $58,499.00-$63,905.00 range, with expectations that prices will soon break the November 2021 high of $69,044. A large part of this year’s gains are in anticipation of the programmed “halving event” (when the reward given to miners for processing transactions and adding them to the blockchain is reduced by 50%), which occurs in April. BTCUSD rallied prior to previous events, which may also be the case here.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: closed 7.1036, expected 7.1938, previous 7.1075.
Shanghai Shenzhen CSI 300 rose 1.91% to 3516.08.
Chinese stocks soared on a combination of buying from State-owned funds and hopes for a new stimulus package being announced and ahead of next week’s National People’s Congress.
Chart: USDCNY and USDCNH daily
Source: Bloomberg
