Photo: BingAI

July 5, 2023

  • Geopolitical tensions escalate.
  • FOMC minutes are ahead.
  • USD opens mixed after quiet overnight session.

FX at a glance:

 Source: IFXA Ltd

USDCAD Snapshot: open 1.3270-74 overnight range 1.3222-1.3291,close 1.3223

USDCAD rallied on the back of commodity currency selling pressures after weaker than expected Chinese data suggested slower global growth. 

FX traders have yet to react to the BC port workers strike which if prolonged could put a crimp in the BoC’s inflation fighting efforts.  The port workers are fighting inflation as well.  They want a 17% wage bump over 2 years plus a $8,000 signing bonus.

It’s grocery rebate day in Canada.  Eligible Canadians that received a GST/HST rebate In January will receive a cash deposit of about double that amount today. The $2.5 billion being spent may give the economy enough of a boost to offset any damage from the Port strike. (if not, it will certainly boost alcohol sales).

The Canadian economic calendar is empty.

USDCAD Technical Outlook

The USDCAD technicals flipped to bullish with the break above 1.3270 and have set its sights on the 1.3460 area.  However, it won’t be a straight shot as there are plenty of resistance levels on the path higher.

A move below 1.3190 negates the upward pressure and argues for 1.3150-1.3350 consolidation.

For today, USDCAD support is at 1.3250 and 1.3280.  Resistance is at 1.3320 and 1.3350.

Today’s range 1.3240-1.3340

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap

US traders are returning from an extended long weekend to a tension-rich, data-dry environment, at least for today.

Ukraine is accusing Russia of planning to blow up the Zaporizhzhia nuclear power plant, while Moscow claims it is Ukraine that wants to destroy the plant to blame Russia.

The FT reports that Chinese President Xi Jinping told Putin not to use nuclear weapons in Ukraine, a move designed to help repair relations between China and Europe.

US/China relations took another hit following reports that President Biden plans to block or restrict Chinese companies from using US cloud services. The news follows earlier announcements by the US to limit sales of chipmaking equipment, including to China.

In retaliation, China slapped new export controls on key minerals used in semiconductor and EV production.

The highlight of the day will be the FOMC minutes at 2:00 pm, which will reignite the hike or hold debate.

EURUSD chopped around in a 1.0867-1.0907 range, with the peak and the trough occurring around the release of Eurozone data. German Services PMI was 54.1, as expected, while Eurozone Services PMI ticked down to 52 from 52.4. EURUSD technicals are slightly bullish above 1.0850, looking for a break above 1.0930 to extend gains to 1.0980.

GBPUSD drifted in a 1.2697-1.2721 band, ebbing and flowing at the whim of US dollar sentiment. UK Services PMI was 53.7, as expected. The GBPUSD technicals are bullish above 1.2640, looking for a break above 1.2750 to target 1.2850.

USDJPY is near the bottom of its 144.22-144.73 range. Japan Services PMI fell to 52.1 from 54.2.

AUDUSD drifted lower, falling from 0.6697 to 0.6666, after weaker than expected Chinese Caixin Services PMI was seen as another sign of a weakening Chinese economy. Additionally, June Services PMI was below the forecast. The currency saw further pressure from fears that the RBA will leave rates unchanged in August, after they left them unchanged on July 4.

NZDUSD traded narrowly in a 0.6184-0.6205 range due to the negative risk sentiment that followed the Chinese Caixin data.

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

Source: Bloomberg

China Snapshot

Bank of China Fix: 7.1968,  July 4, 7.2046, July 3, 7.2157, June 30, 7.2258

Shanghai Shenzhen CSI 300 fell 0.77% to 3868.81 (Tuesday 3899.01 today.

Caixin June Services PMI 53.9 (Forecast 56.2, May 57.1)

Chart: USDCNY 6 month

Source: Bloomberg