Source: Global news

December 20, 2021

  • Risk off trading sinks equities, oil, and boosts US dollar
  • Omicron fears rampage through thin holiday markets
  • US dollar soars on safe-have demand, rate hike talk

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2918-22, Overnight Range 1.2887-1.2940, Previous close 1.2895

USDCAD rallied Friday as the S&P 500 plunged and continued that theme overnight. The rally stalled at 1.2934, coinciding with S&P 500 futures climbing off the session low. A steep slide in WTI oil prices overnight which fell 4.75% at one point, exacerbated the gains. WTI dropped from $70.24/barrel at Friday’s close to $66.90/b in Europe, before rising to $68.27 in early NY trading.

A slew of headlines spooked traders including those dealing with reactions to the rapidly spreading Omicron virus. The Netherlands closed their borders, schools, universities bars and restaurants. Denmark closed theaters, concert halls, and Tivoli Gardens. The UK reported a record number of infections.

Markets were also unnerved by news that Democrat Senator Joe Manchin appears to have killed Biden’s Build Back Better initiative, due to his exorbitant cost, which led to Goldman Sachs revising 2022 Q1 GDP down to 2.0% from 3.0%.

The Canadian economic calendar is empty

Technical view:  The intraday USDCAD technicals are bullish above 1.2810, the hourly uptrend line from December 8, which is guarded by minor support in the 1.2870 area (previous resistance). The rally stalled at last weeks peak which sits below significant long term resistance in the 1.2970-1.3030 area. A break below 1.2870 would extend losses to 1.2810.  The Bollinger Bands and RSI on a daily chart suggest USDCAD is overbought.

For today, USDCAD support is at 1.2870 and 1.2810.  Resistance is at 1.2940 and 1.2970.  Today’s Range 1.2850-1.2940

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Traders embraced risk aversion like a toddler hugging Santa Claus. Friday’s weak Wall Street close combined with ominous Omicron headlines and news that Biden’s Build Back Better plan was toast sent Asia and Europe equity indexes tumbling. Safe-haven demand depressed US Treasury yields and boosted the US dollar.

The PBoC announced that the 1 year Loan Prime Rate would be cut to 3.80% from 3.85% in the face of fresh negative Chinese developer issues failed to provide and comfort.

Turkey President Erdogan’s whack-a-doodle economic policies and strategy continue to wreak havoc on the Turkish lira. USDTRY soared to 17.5602 from 16.4145 when he said “Sooner or later, just as we lowered inflation all the way to 4% when I came to power, we will lower it again. But, I will not let my citizens, my people, be crushed under interest rates.”

EURUSD opened near the bottom of the overnight 1.1236-1.1286 range, then traded higher in a thin market. Prices garnered a bit of support from reports that Biden’s stimulus program is headed for the scrap heap, but gains were capped by the ECB’s insistence that inflation is transitory, along with ongoing Omicron woes. Germany announced that Joachim Nagel would be the Bundesbank President. The intraday EURUSD technicals are mildly bullish above 1.1230.

GBPUSD was beaten up on negative Omicron news and UK politics in Asia and early European trading but recouped the overnight losses in NY while trading in a 1.3175-1.3242 range. Reports that the government is considering more COVID-19 restrictions in the wake of surging Omicron cases is weighing on the currency. So did the news that Brexit Minister David Frost quit, saying he was unhappy with the direction of Boris Johnson’s government. The GBPUSD technicals are bearish below 1.3330.

USDJPY traded choppily in a 113.35-113.71 range. Safe-haven demand for yen was offset by the rebound in the US 10- year Treasury yield to 1.388% from the session low of 1.354%. BoJ Governor Kuroda repeated that it was too early to consider normalising policy.

AUDUSD and NZDUSD tracked broad USD sentiment. Prices dropped in Asia and Europe then rebounded in NY trading.

There are no US economic reports today.

Chart of the Day:  CBOE Volatility Index (VIX)

Source:  Yahoo Finance

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3933, Previous 6.3631

Shanghai Shenzhen CSI 300 fell 1.50% to 4,880.42

PBoC cuts 1 year Loan Prime Rate (LPR)  to 3.80% from 3.85%, leaves 5 year LPRT unchanged at 4.65%.

Equities pressured by fresh property developer woes

Chart: USDCNY 1 month

Source: Yahoo Finance