Source:  Wikimedia

January 17, 2022

  • US closed for Martin Luther King Day
  • China’s PBoC cuts some interest rates
  • US dollar opens with gains but well below its best levels.

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot: Open 1.2504-08, Overnight Range-1.203-1.2555, previous close 1.2550

USDCAD is trading at overnight session lows to start the week, mainly due to the US dollar paring Friday’s gains.

High oil prices continue to act as a drag on USDCAD gains.  WTI oil is bumping up against resistance in the $84.50/b-$85.20/b area which acted as support between October 2012 and October 2014, which suggests prices will struggle to move above that level.  In addition, there is reportedly some progress in the Iran Nuclear talks, which if they conclude successfully will provide additional crude supply.

The BoC Business Outlook Survey should be a non-event, as usual and so will November Manufacturing Sales data (forecast 3.1% m/m)

FX trading will be quieter than usual as the US is closed for Martin Luther King Day and a major snowstorm is hitting Southern Ontario

Technical view:  The USDCAD technicals are bearish. Friday’s USDCAD rally failed to penetrate through the January 6 downtrend line at 1.2560, keeping the focus on the 1.2440-50 support area. Below 1.2440 opens the door to the October 2021 low of 1.2286. A move above 1.2560 targets 1.2620.

For today, USDCAD support is at 1.2440 and 1.2410.  Resistance is at 1.2530 and 1.2560.  Today’s Range 1.2450-1.2540

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

The PBoC, China’s central bank cut interest rates, but USDCNY didn’t really react, which meant US dollar gains against the G-10 majors didn’t occur either. Part of the reason was the move had been anticipated. The PBoC cut its 7-Day Repo rate to 2.10% from 2.20% and trimmed the 1 year medium lending facility rate to 2.85% from 2.95%.

Russia continues to menace Ukraine, with the US and NATO actions helping to escalate tensions.  War in Europe (gee, when has that been a problem) is a real risk.  The Biden administration may not get much support for military action, as American’s are licking their wounds from the debacle that was Afghanistan.  FX traders do not seem to be concerned.

US markets are closed for Martin Luther King Day which didn’t encourage much overnight price action.

The World Economic Forum in Davos is a virtual event. China President Xi Jinping told the audience that global inflation risks are emerging. Welcome to 2021, Mr Jinping.

EURUSD chopped about in a 1.1401-1.1433 range but with a negative bias as the impact from Friday’s weaker than expected US Retail Sales and Michigan consumer Sentiment data fades.  The US interest outlook remains the focus. NY Fed President John Williams comments from Friday saying he agreed with rate hike forecasts, saying that inflation was too high.

GBPUSD consolidated Friday’s losses in a 1.3658-1.3688 range. Traders ignored UK House Price Index data and tracked broad US dollar movements.  The GBPUSD uptrend is intact above 1.3600, with the rally underpinned by BoE rate hike expectations.

USDJPY drifted from 114.17 to 114.54, supported by the US 10-year Treasury yield at 1.793%. Japan is considering more restrictive COVID-19 measures in Tokyo.

AUDUSD and NZDUSD traded in narrow ranges with a negative bias due to the outlook for US interest rates.

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3599, previous 6.3677

Shanghai Shenzhen CSI 300 rose 0.86% to 4,767.26

2021 GDP 8.1% y/y, easily beating official target of 6.0%.

4Q GDP 4.0% y/y, (Previous 4.9% y/y), Dec. Retail Sales 1.7% y/y (forecast3.7%, November 3.9% y/y)

December Industrial Production 4.3% y/y (forecast 3.65, previous 3.8% y/y)

PBoC cuts 7-Day Repo rate to 2.10% from 2.20% and trims 1 year medium lending facility rate to 2.85% from 2.95%

Chart:  USDCNY 1 month

Source: Yahoo Finance