- Some Russian troops return to base, according to Russia
- Europe stocks rebound from negative open, all major indexes higher
- US dollar retreats as safe-haven currencies dumped.
FX at a Glance
Source: IFXA Ltd/RP
USDCAD Snapshot: Open 1.2710-14, Overnight Range-1.2703-1.2751, previous close 1.2727
USDCAD rallied to the overnight session high in Asia, due to negative risk sentiment following the weak close on Wall Street. That changed in Europe on reports some Russia troops on the Ukraine border and returned to base, and FX risk sentiment turned positive. USDCAD dropped in tandem with broad US dollar selling.
Prime Minister Justin Trudeau invoked the Emergencies Act in an effort to give police more powers to end protests against his government. He failed to act when US/Canada borders in Ontario and Alberta were blocked by protestors but took exception to protestors inconveniencing politicians and bureaucrats in Ottawa. FX traders don’t care unless they live in Ottawa.
WTI oil prices slid from $95.14 to $92.70/barrel on the apparent easing of tensions between Russian and Ukraine.
The USDCAD story is a geopolitical story with price swings dictated by the prevailing risk mood and USDCAD gains slowed by rising oil prices. At some point, investors will realized that Canada is far removed from any Eastern European hostilities, and its vast supply of crude, and bullish interest rate outlook will make the Canadian dollar an attractive safe haven currency.
Canada Housing Starts are expected to have increased to 245,000 from 236,100 in January.
Technical view: The intraday technicals are like yesterday’s, bullish above 1.2680. However, the failure to break above 1.2780, followed by the move below 1.2750 sets the stage for a test of 1.2680, the January uptrend line. with the break above 1.2750 setting the stage for another probe of resistance in the 1.2800-30 area. A move below support opens the door to further losses to 1.2550.
For today, USDCAD support is at 1.2680 and 1.2630. Resistance is at 1.2730 and 1.2770. Today’s Range 1.2670-1.2750
Chart USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
Risk sentiment turned from negative in Asia to positive in Europe. The major Asia equity indexes closed with losses as Russia/Ukraine tensions weighed on sentiment. The US dollar was in demand as a safe-haven. That changed in Europe after Russia said some troops returned to their bases and German Chancellor Olaf Scholz meets with Putin. European equity indexes which were on the defensive, rallied on the news, led by a 1.42% rise in the German Dax. Wall Street futures rebounded, S&P 500 futures rose 1.46% and DJIA futures gained 1.12%. WTI oil fell 2.64% and gold dropped 2.71%.
Bond traders appear to agree. The 10-year Treasury yield jumped to 2.042% from 1.967% in Asia as investors bailed out of safe-haven Treasuries.
EURUSD drifted higher in Asia and then accelerated in Europe, rising from 1.1304-1.1352 due to improving risk sentiment and improving Eurozone and German data.
A Reuters poll of economists expects the ECB to raise rates in H2 2022 compared to the previous survey of rate hike in 2023.
The German ZEW Economic Sentiment and Current Situation data was “cautiously optimistic’ according to the survey authors. Eurozone employment and GDP were as expected while the Eurozone trade deficit widened in December. However, yesterday’s dovish comments by ECB President Christine Lagarde limited gains.
GBPUSD traded choppily in a 1.3529-1.3566 range and is near the session low in early NY. Prices are not getting much help from a strong UK labour report. The ILO unemployment rate was unchanged at 4.1% while the claimant count declined. Traders are content to await further Russia/Ukraine developments and UK Retail Sales data on Wednesday.
USDJPY dropped in Asia then rallied from 115.27 to 115.70 in NY trading. Prices are underpinned by the jump in US Treasury yields, but gains are slowed by lingering safe-haven demand for yen.
AUDUSD sits just above the middle of its 0.7103-0.7155 range. The improved risk sentiment helped offset selling pressures from iron ore prices which dropped over 10% thanks to China’s crackdown. The minutes from the RBA meeting of February 1 showed that policymakers were content to be patient and monitor inflation.
US data includes PPI and the Empire State Manufacturing Index.
Chart of the Day: iron ore 1 week
Source: Market Insider
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
Today’s Bank of China Fix 6.3605, previous 6.3664
Shanghai Shenzhen CSI 300 rose 1.06% to 4600.10
The China Securities Journal suggests PBoC may cut the RRR rate, “later.” ING expects LPR cut February 20.
China regulators reportedly taking aim at Ride Hailing Services
Chart: China 1 month
Source: Saxo Bank