December 4, 2024

• South Korea’s martial law flip-flop makes traders nervous
• Markets awaiting Fed Chair Powell speech this afternoon.
• US dollar opens with modest bid on safe-haven demand.

FX at a Glance

Source: IFXA/RP

USDCAD open 1.4066, overnight range,1.4052-1.4083, close 1.4073

USDCAD is consolidating yesterday’s gains after a bout of risk-aversion boosted US dollar safe-haven demand. In addition the CAD/US 10-year yield spread widened to -113.3, close to its -117.5 low seen on November 16, when USDCAD touched 1.4090.

WTI oil is trading sideways but with a bit of a bid in a 69.85-70.52 range ahead of the December 5 Opec meeting. Analysts expect that the cartel will extend supply cuts until the end of Q1 2025

USDCAD downside remains limited ahead of the Trump inauguration due to the risk of 25% tariffs and the soft Canadian GDP data released last Friday did not help.

The Canadian economic calendar is empty.

USDCAD Technicals

The intraday technicals are bullish above 1.4030 and looking for a break above 1.4090 to extend gains to 1.4150.  A move below 1.4030 targets 1.4010, then 1.3980.

Longer term, uptrend line from June 2021 is intact while prices are above 1.3460 and that level is guarded by support at 1.3860 and 1.3960. The move above 1.3980 opens up a new 1.3880-1.4170 range and that is likely to be the case until Trump’s inauguration.

For today, USDCAD support is 1.4030 and 1.4010. Resistance is 1.4090 and 1.4130.

Today’s Range: 1.4030-1.4120.

Chart: USDCAD  daily

Source: Oanda.com

Martial Law Flip-Flop

South Korea’s declaration of Martial Law yesterday lasted less time than it takes to make kimchi, and the aftermath continues to ripple through markets.

The US dollar caught a bit of a safe-haven bid after President Yoon Suk Yeol invoked martial law. He said it was to protect the Korean people from the threat of North Korean communist forces. He may have a point, as China has a nasty reputation for interfering in elections and politics worldwide. Why not with their nearly next-door neighbor?

Spot-light on Fed Rate Outlook

Fed Chair Jerome Powell is speaking at 1:40 p.m. in NY today, and traders are hoping his remarks echo those of his colleagues. Yesterday, San Francisco Fed President Mary sounded like she was all-in for a 25 bp rate cut on December 18. Fed Kugler and Chicago Fed President Austan Goolsbee seemed to agree.

ADP Results are Soft

ADP Reported a modest 146,000 in November 4,000 less than the forecast and 38,000 less than the downwardly revised 184,000 in October (revised from 233,000). The results are encouraging for a December 18 rate cut. ISM Services PMI data is expected to ease to 55.5 from 56.

EURUSD

EURUSD rose and sank in a 1.0482-1.0530 range as mixed economic data and French politics competed for dominance. Marine Le Pen’s National Party is expected to vote in favor of a non-confidence vote that will oust Prime Minister Michel Barnier.

Meanwhile, a slew of weak PMI reports weighed on the currency. Hamburg Commercial Bank Chief Economist Cyrus de la Rubia wrote: “Stagflation is a pretty nasty word, especially if you are a central banker, but that is what is hitting the eurozone right now.”

GBPUSD

GBPUSD traded in a 1.2630-1.2702 range, the same as yesterday. Traders were not very impressed with Composite or Services PMI data, both of which topped forecasts.

November Services PMI was 50.8 (forecast 50), and Composite PMI was 50.5 compared to the estimate of 49.5. BoE Governor Andrew Bailey’s comments capped gains after he warned gradual interest rate cuts were likely over the coming year.

USDJPY

USDJPY climbed steadily, rising from 149.53 to 150.90, where it trades in early NY. The currency pair was supported ahead of Fed Chair Powell’s speech today, but further gains may be hard to come by as the BoJ is expected to hike rates on December 18.

AUDUSD and NZDUSD

AUDUSD dropped from 0.6489 to 0.6409 on the heels of a tepid GDP report and has yet to recover. Australia’s Q3 GDP rose 0.8% y/y, which was below the consensus of 1.1%, and 1% in Q2.

The news led to an April rate cut being fully priced in, although the RBA may be hesitant due to elevated inflation and a tight labor market. NZDUSD was dragged down by the AUDUSD performance and traded in a 0.5831-0.5885 range.

USDMXN

USDMXN is in the middle of its 20.3083-20.3850 range as it consolidates yesterday’s post-employment data losses. Mexico’s unemployment rate fell to 2.5% in October, compared to 2.9% in September.

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

Source: Investing.com

China Snapshot

PBoC Fix: 7.1934 vs exp. 7.2821 (prev. 7.1996))

Shanghai Shenzhen CSI 300 fell 0.54% to 3930.56

Caixin Services PMI 51.5 (forecast 52.5,  Oct. 52)

Chart: USDCNY and USDCNH

Source: Investing.com