May 8, 2023
- UK closed in honor of King Charles coronation.
- Market focus in on US CPI on Wednesday
- US dollar opens mixed but adds to losses compared to Friday close.
FX at a glance
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.3340-44, overnight range 1.3344-1.3386, close 1.3376
USDCAD continues to be weighed down by broad US dollar selling pressure from market expectations that the Fed will cut the Fed funds rate by 100-125 basis points by December/January.
In contrast, Bank of Canada Governor Tiff Macklem injected domestic rate hike concerns into the market on Thursday. He warned that rates would rise if inflation got stuck above the 2.0% target level.
Friday’s Labour Force Survey painted a healthy picture for the job market, even though most gains were part-time work. The results help justify another inflation-fighting BoC rate hike although some economists suggest that employment growth momentum will stall shortly.
USDCAD retreated despite WTI oil prices dropping to $68.52/b on Friday and largely ignored the WTI rebound to $72.93/b today. The rally occurred following the strong US nonfarm payrolls report which reduced US recession worries.
USDCAD is also trading with a negative bias because of the improved risk sentiment tone sparked by the sharp rebound in US regional bank shares. PacWest Bancorp rose 16% in pre-market trading today.
USDCAD Technical Outlook
The USDCAD technicals turned bearish on Thursday with the break below 1.3580, and they haven’t looked back. The sell-off intensified on Friday after the US and Canadian employment reports and the move below the 200-day moving averages at 1.3443, served to accelerate losses.
flipped to bearish yesterday. USDCAD failed to break above resistance in the 1.3640-60 area, and the subsequent drop below 1.3580, snapped the uptrend from April 14. The sell-off accelerated on the breech of support in the 1.3515-30 area, setting the stage for further losses to the 1.3390-1.3400 zone.
Longer term Fibonacci retracement of the April 4, 2022-October 13, 2022, range targets 1.3015(61.8% retracement) on a break below 1.3193 (50% retracement).
For today, USDCAD support is at 1.3310 and 1.3280. Resistance is at 1.3360 and 1.3390
Today’s range 1.3290-1.3360
Chart: USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
The UK is in the final throes of a three-day King Charles lll coronation party which served to sap some liquidity out of financial markets today.
Friday’s better than expected US employment report (actual 253,000 vs forecast 179,000) resulted in the US dollar being sold rather than bought, which is the usual case. That’s because the evolving narrative is that strong results prove America will avoid a recession.
Traders do not believe the Fed will hike rates higher and have priced over 100 bps of rate cuts by year end.
Chicago Fed President Austan Goolsbee encouraged the dovish outlook on Friday when he responded to questions about rate hikes following the NFP report. He said, “it’s way too premature” to suggest the data would necessitate a rate bump. He is concerned that today’s “credit conditions” have correlated with recessions in the past.
Asian equity indexes were higher except Japan. The Nikkei 225 index fell 0.71%. European bourses are slightly positive and S&P 500 futures are 0.13% higher.
EURUSD drifted in a 1.1015-1.1053 band with support derived from differing Fed and ECB interest rate outlooks. Bullish EURUSD trade strategies have been very popular and now those positions are acting as a drag on gains. German data helped to slow the rise. Sentix Investor Confidence Index dropped to -13.1 from 8.7 in April, while. March Industrial Production fell 3.4% m/m compared to a 2.1% rise in February.
GBPUSD traded sideways in a 1.2627-1.2668 band. The Bank of England is widely expected to raise rates by 25 bps on May 11, with another 50-75 bp rate increased expected to follows because of high inflation.
USDJPY chopped about in a 134.65-135.29 range supported by the increase in the US 10-year Treasury yield which rose to 3.49% this morning compared to 3.397% on Friday. The perkier risk sentiment tone aided the rally as some JPY safe haven trades were reversed.
AUDUSD traded in 0.6742-0.6796 range, with prices underpinned by last week’s 25 bp rate hike and hawkish statement from the RBA.
The US Loan Officer Survey may get some attention due to the focus on credit conditions.
FX open, high, low, previous close as of 6:00 am ET
Bank of China Fix: 6.9158, previous 6.9114.
Shanghai Shenzhen CSI 300 rose 1.143% to 4062.66.
Caixin April FX reserves rise to 3.205 trillion from 2.184 t.
Chart: USDCNY 1 month