May 17, 2022

  • Risk sentiment improves as Shanghai lockdown eases and stocks rally
  • US Retail Sales rise higher than expected
  • USD opens softer led by AUDUSD rally

FX change at a glance:

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2807-11, overnight range 1.2809-1.2852, previous close 1.2847

USDCAD dropped through support at 1.2870 yesterday and never looked back. Prices slid to 1.2847 at then continued to drop to 1.2809, where they opened in NY. The USDCAD plunge was fueled by a broad-based US dollar sell-off due to profit taking, a better tone to risk sentiment, and a surge in oil prices.

West Texas Intermediate (WTI) ticked higher overnight, climbing to $115.12/barrel after closing at $113.89/b Monday. WTI gained 16.7% since last Tuesday’s low of $98.60/b. Oil is in demand as the EU attempts to impose an oil embargo on Russia. Hungary’s Prime Minister Viktor Orban, (a Vlad Putin wannabe) opposes the move, raising questions as to why Hungary is even a member of the EU.

WTI prices got an added lift as lockdown measures in Shanghai ease, leading to speculation of higher oil demand.

USDCAD may see added selling pressure on Wednesday if the April CPI data is higher than expected. If so, it may open a debate that the Bank of Canada will raise rates 0.75% at the June 1 meeting.

US Retail Sales data and S&P 500 performance will dictate USDCAD direction.

USDCAD technical outlook  

The intraday USDCAD technicals are bearish The move below 1.2890 snapped the uptrend line from April 21 and the subsequent move below 1.2840 (38.2% Fibonacci level of 1.2460-1.3070 range) targets 1.2690 (61.8% Fibo)

For today, USDCAD support is at 1.2805 and 1.2790.  Resistance is at 1.2840 and 1.2890.  Today’s Range 1.2790-1.2860.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Financial markets have become WOKE. Today, traders speak “their truth,” and it is a tale of sunshine and unicorns in a universe where markets always move their way and profits pour in. The reality that soaring inflation and sharply higher interest rates are usually not part of a favourable investment climate does not fit the woke narrative, so they are ignored.

The only reason for today’s “risk-on rally” is that traders are banking some gains as nothing has changed. Russia is still invading Ukraine, the EU and UK are at odds, and China is still China. Traders are excited that China may be easing some tech stock restrictions, but that doesn’t mean authorities won’t target another sector.

Asian equity markets closed higher, led by a 3.27% rise in Hong Kong’s Hang Seng index. Japan’s Nikkei 225 and Australia’s ASX 200 gains were more modest, at 0.42% and 0.27%, respectively. European markets are rallying like it’s VE Day, with Germany’s DAX index rising 1.42%. S&P 500 Futures jumped 1.71%, while gold gained 0.74%. The US 10-year Treasury yield is 2.909%. (as of 7:am ET)

St Louis Fed President James Bullard is on board with -.50% rate hikes at the next two meetings and said that inflation is the most pressing issue. Nothing new there.

Fed Chair Jerome Powell speaks at 2:00 pm ET, and the born-again interest rate hawk should shift the market focus to inflation woes and higher rates. He may throw a wet-blanket on today’s positive risk sentiment after the latest Retail Sales data.

US Retail Sales were stronger than expected in April, rising 0.9% m/m rather than the 0.7% m/m forecast. Excluding auto’s, Retail Sales rose 0.6% m/m (forecast 0.3%). The March data was revised substantially higher suggesting US consumers are still spending. Mr Powell will need to discover if the demand is due to expectations for higher prices down the road.

EURUSD traded in a 1.0430-1.0478 range overnight, supported by the improved risk tone and better than expected Eurozone GDP, which rose to 5.1% y/y compared to 5.0% expected.

EU officials are attempting to impose a total ban on Russian energy while discussing turning over seized Russian assets to Ukraine. Traders are blissfully ignoring a hostile Russian reaction if such a move occurs.

EURUSD blasted above the overnight session peak and touched 1.0526 in NY. The move followed comments by Dutch Central Bank President Klaas Knot. He said the ECB should raise rates by at least 25 basis points and leave the door open for a bigger move, depending on the data.

GBPUSD soared rising from 1.2319 to 1.2487 after a better than expected employment report raised the risk of more aggressive Bank of England tightening. The news followed on the heels of broad US dollar weakness. The intraday technicals are bullish above 1.2330 but the move is just a correction if prices fail to exceed 1.2500.

USDJPY traded in a 128.84-129.55 range. Prices ticked higher on the back of modestly higher US Treasury yields and dovish comments from BoJ Deputy Governor Masayoshi Amamiya. He said “What’s important is to continue our powerful monetary easing to firmly support economic activity of companies and households.  If monetary stimulus is reduced now, that would cause downward pressure on the economy, making 2% inflation even more of a distant target,

AUDUSD traded in a 0.6308-0.6374 range on the back of somewhat hawkish RBA minutes, positive risk sentiment and surging commodity prices. The RBA minutes suggested policymakers will consider more aggressive rate hikes in the future.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7854   Previous 6.7871

Shanghai Shenzhen CSI 300 rose 1.25 % to 4,005.89

Stocks rally as the tech stock clampdown eases and Shanghai reopens.

Chart: USDCNY 1 month

Source: Yahoo Finance