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December 8, 2023

  • NFP tops guess-rises 199k
  • Traders downgrade March rate cut hopes.
  • US dollar opens mixed from yesterday but rallies post-NFP

FX at a glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3573-77, overnight range 1.3571-1.3603, close 1.3601

USDCAD is following US dollar sentiment like a puppy on a leash whose every attempt at going its own way is quickly brought up short. USDCAD popped to 1.3595 from 1.3570 in the wake of the stronger than expected US employment report.

USDCAD may experience elevated volatility around the 10:00 am NY option expiry window. There are $2.1 billion of 1.3575 strikes and $1.6 billion 1.3590-1.3605 strikes maturing.

 Canadian economists are suggesting that the BoC could match any Fed rate cuts if they occur in March, like many expect.  If so, Fed easing hopes won’t translate into a Canadian dollar benefit.

USDCAD continues to underperform against its commodity bloc peers partly because of weak oil prices. WTI traded in a $69.51-$71.27/b range overnight.

USDCAD Technicals:

The intraday USDCAD technicals are bearish below 1.3610 looking for a break below support in the 1.3510-40 zone to extend losses to 1.3460. A break above 1.3610 targets 1.3440, then 1.3470

Longer term, the USDCAD uptrend from August is intact while prices are above 1.3510.

For today, USDCAD support at 1.3550 and 1.3510.  Resistance is at 1.3620 and 1.3660.  Today’s range 1.3550-1.3630

Chart: USDCAD 4 hour

Source: Daily FX

G-10 FX recap

Traders got a rude awakening this morning after the November nonfarm payrolls data surprised to the upside.  The US gained 199,000 jobs in November compared to the estimate of 180,000.  Average hourly earnings rose 0.4% compared to October’s 0.2% increase. 

The US dollar rallied, Treasury yields spiked, and S&P 500 futures dropped modestly. Those moves are already being reversed.  Nevertheless, the news will make Fed Chair Powell’s pushback against market speculation of rapid rate cuts a tad more believable especially due to the increase in wages.

Source: WSJ

The countdown to today’s US data tempered trading enthusiasm overnight, and the major G-10 currencies drifted inside yesterday’s ranges, except for the yen.

Asian equity indexes closed mixed. Japan’s Nikkei 225 index dropped 1.68% due to the rising yen, while Australia’s ASX rose 0.30%, supported by China’s latest plan to bolster the economy. European bourses gave back some of their earlier gains post-NFP, but the French CAC 40 is still up 0.49%. S&P 500 futures are down 0.44%. The US 10-year Treasury yield climbed from 4.129% at yesterday’s close to 4.26% post NFP before retreating to 4.23%.

EURUSD drifted in a 1.0772-1.0801 range overnight, dropped to 1.0724 on the NFP data, then rebounded to 1.0755. The currency pair remains pressured by elevated ECB rate cut hopes (75% probability of March rate cut), which may be a tad aggressive. German November HICP was 2.3% y/y, as expected. Price action may be extra choppy due to chunky option strikes expiring at 10:00 am (€1.9 billion at 1.0750 and €2.4 billion between 1.0785-1.0800).

GBPUSD traded quietly in a 1.2555-1.2602 range, then fell to 1.2512 post NFP. That move was completely erased within minutes, and GBPUSD is at 1.2565. GBPUSD continues to see a bit of support, particularly against the Euro, because the BoE is expected to cut UK rates far less than the ECB. UK Consumer Inflation Expectations fell to 3.3 from 3.6 in October.

USDJPY traded erratically. Prices plunged from the NY closing level of 144.13 to 142.50 in Asia, then rebounded to 144.67 in early NY, due to rising US Treasury yields. Traders eagerly anticipating that the BoJ will scrap its negative interest rate policy this month may be disappointed. Economists are warning that the weaker than expected Q3 GDP data (actual -0.7% vs. forecast -0.5%) gives policymakers room to delay any policy action.

AUDUSD climbed in a 0.6592-0.6621 range before a short-lived dip to 0.6567. AUDUSD is underpinned by reports that Chinese officials are considering increasing fiscal stimulus.

FX high, low, open (as of 6:28 am ET)


China Snapshot

PBoC fix: today 7.1176, expected 7.1623, previous 7.1140.

Shanghai Shenzhen CSI 300 rose 0.30% to 3399.46.

China’s Politburo is pledging to bolster government fiscal measures but didn’t outline any specifics.