Source: Pixabay

July 7, 2021

FX markets are cautious due to renewed COVID fears, Opec impasse

Risk that FOMC minutes reveal more hawkish than expected Committee

US dollar opens soft, consolidating yesterday’s gains

USDCAD open 1.2433-37,  Overnight range,  1.2425-1.2473,  Previous close 1.2457

FX at a Glance

FX Recap and outlook

Negative risk sentiment ran rampant through markets yesterday but took a breather in overnight markets.  The Opec’s (+ Russia) failure to convince UAE to agree to increase production while extending existing caps beyond March 22 made traders nervous.  So did news of a rapidly spreading Delta-variant COVID virus.

Traders reassessed positions ahead of today’s FOMC minutes and started reducing risk.  That led to a nasty day.  Wall Street closed modestly lower, US 10-year Treasury yields collapsed from 1.44% to 1.346% today, and the US dollar soared.

Risk sentiment simmered in overnight markets.  The major Asia equity indexes closed with losses, but European bourses are trading in positive territory, led by a 0.71% gain in Germany’s DAX index.  Wall Street futures are flat to modestly higher.  Oil and gold prices rose 1.88% and 0.75% respectively (6:00AM ET).

The FOMC minutes are the highlight.  The June 16 FOMC meeting was deemed to be “hawkish” due to the dot-plot projections pointing to two rate hikes in 2023 when before, there were none.  Fed Chair Jerome Powell pushed back against that notion.  The minutes may provide an opportunity for analysts to determine if the Committee is more hawkish than what Mr Powell implied in his press conference.

 EURUSD dropped from 1.1893 to 1.1805 yesterday and consolidated those losses in a 1.1813-1.1834 range overnight.  The European Commission raised the GDP growth forecast to 4.8% from 4.3% and projected inflation at 1.9%  for 2021.

German Industrial Production dropped -0.3% in May, which had a lot to do with supply chain issues.  The EURUSD technicals are bearish below 1.1880, looking for a test of 1.1700 support.

GBPUSD plunged to 1.3773 from 1.3895 yesterday due to risk aversion US dollar demand and chopped between 1.37779-1.3840today. The currency continues to be underpinned by reopening plans for the economy.  The GBPUSD technicals are bullish while prices are above 1.3770.

USDJPY dropped to 110.41 from 110.80, with prices weighed down by safe-haven demand for yen and falling US Treasury yields.  The January 2021 uptrend line remains intact while prices are above 110.20.

AUDUSD and NZDUSD tracked broad US dollar moves.  Both suffered from negative risk sentiment, but NZD outperformed AUD due to forecasts of an RBNZ rate hike in November.

USDCAD mirrored WTI price action yesterday, but not so much overnight.  WTI fell to $72.94 from $76.90 /barrel yesterday but traded with a bullish bias overnight, rising from $73.19 to $74.80/barrel.  USDCAD direction continues to be driven by US dollar sentiment and not domestic factors.  USDCAD continues to retrace yesterday’s move in early NY trading, but the lack of actionable data, and caution ahead of the FOMC minutes suggests choppy trading ahead.

Today’s US JOLTS survey and Canada Ivey PMI data will not be a trading factor ahead of the FOMC minutes.

USDCAD technical outlook

The intraday USDCAD technicals are bullish above 1.2260, a level guarded by minor support at 1.2410, and looking for a break above resistance in the 1.2490-10 area, to extend gains to 1.2650. However, the long-term downtrend from March 2020 is intact while prices are below 1.2500.    For today, USDCAD support is at 1.2420and 1.2360. Resistance is at 1.2480 and 1.2510   Today’s range 1.2380-1.2470

Chart USDCAD daily

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank