September 13, 2022

  • US CPI higher than expected-Core CPI rises to 6.3% y/y from 5.9% in July
  • Eurozone and German ZEW Survey weakens
  • US dollar rallies post- CPI

FX at a glance: 

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2969-1.2973, overnight range 1.2956-1.3090, close 1.2984

USDCAD is probing support in the 1.2950-60 zone thanks to broad US dollar weakness in hopes for a weaker than expected US inflation report. Risks sentiment is positive as measure by the 0.64% rise in S&P 500 futures overnight.

Traders may be getting ahead of themselves. Even if headline US inflation cools, 8.1% is still high. More importantly, the Fed looks at Core-inflation and that number is still rising.

USDCAD may be seeing additional pressure due to the rebound in WTI oil prices which have climbed 4.4% since Monday. The rising risk that Iran and the US fail to agree to a nuclear deal is underpinning crude prices.

The is no Canadian data today

 USDCAD Technical outlook

The intraday USDCAD technicals flipped from bearish to bullish this morning, after prices surged above minor resistance at 1.2990, then broke above 1.3030. Further gains above 1.3070 would negate the downside and target 1.3200.  A break above 1.2960 shifts the focus to 1.2870.

For today, USDCAD support is at 1.3030 and 1.3010.  Resistance is at 1.3090 and 1.3130. Today’s range: 1.3030-1.3130

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

FX traders are an optimistic bunch this morning. They traded cautiously but still knocked the US dollar lower than Monday’s NY open. Many believe the worst is over and that fears around the Ukraine/Russia war, coronavirus, and rising US interest rates are baked into prices.

They hoped that today’s US inflation data will confirm their optimism.

It didn’t.

Within minutes, S&P 500 futures plunged from 4155 to 4030, the US 10-year Treasury yield soared to 3.437% from 3.293%, and the US dollar rallied.

US August CPI rose 8.3% y/y (forecast 8.1%) while Core-CPI jumped 0.6% m/m, and 6.3% y/y (forecast 5.9%.

The news crushed hopes that US interest rates would top out soon.

EURUSD plunged from 1.0186 to 1.0033 as the inflation data suggested the US/ECB interest rate spread would widen.  The plunge fully erased the overnight gains that occurred on anticipation of a weak CPI report.  Traders dismissed soft German and Eurozone ZEW survey data. German Economic Sentiment fell 6.6 points to -61.9, and Current conditions fell from -47.6 to -60.5.

GBPUSD came back to earth.  The US inflation results knocked GBPUSD from 1.1737 to 1.1542.  Traders are awaiting next weeks Fed and Bank of England monetary policy reports.

UK employment data was mixed.  The headlines looked good, but the details were weak. Unemployment fell to 3.8%, the lowest since 1974, but ING economists claimed the drop was due “a dramatic rise in those classified as inactive.”

USDJPY soared from 141.69 to 144.49 following the surge in the US 10-year Treasury yield to 3.437%

AUDUSD fell to 0.6783 from 0.6915 due to the US dollar rally and the drop in commodity prices.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.8928, previous 6.9098

Shanghai Shenzhen CSI 300 rose 0.42% to 4,111.11, Previous 4,093.79

Chinese city, Sanhe (outside of Beijing), population 7501,000 is locked down for 4 days.

Chart: USDCNY  1 month

Source: Bloomberg