Photo: Wikimedia

July 18, 2022

  • Risk sentiment improves with lowered risk of 1.0% Fed rate hike
  • Heat-stroking traders boost EURUSD ahead of this week’s ECB meeting
  • US dollar sinks across the board

FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2965-69, overnight range 1.2966-1.3023, close 1.3023

USDCAD is trading just below where it opened last Monday, making last week’s frantic US inflation-Fed- rate-hike-spike just a bad dream.

USDCAD traded defensively overnight as it extended Friday’s losses which were fueled by Fed policymakers pushing back against 1.0% rate hike speculation.  Stronger than expected US June Retail Sales supported the case for and economic soft landing in America.

Canada’s Finance Minister Chrystia Freeland spoke to Bloomberg about the domestic economy and said, “it is entire reasonable to hope for a soft landing.”

She noted that inflation is “far too high and needs to come down.” She said the BoC has the tools to bring inflation down will omitting her governments contribution to CPI in the form of massive government spending, hiking taxes on oil and gas, while allowing crown corporations to raise prices on dairy products, to name a few.

Canadian inflation is in the spotlight on Wednesday when June CPI is expected to rise 8.3%.  BoC Governor Tiff Macklem probably pre-empted any FX reaction to the data, on July 14.  He told the Canadian Federation of Labour on July 14, “Inflation is high sevens. It’s probably going to go a little over eight (8%). We have the next CPI next week. We know oil prices were very high in June, so I wouldn’t be surprised to see it move up.

USDCAD is also undermined by a rebound in oil prices.  WTI climbed to $100.55/barrel from $95.88, partly because Saudi Arabia did not comply with Biden’s request to raise production.

Canada June Housing starts are expected to have slipped to 266,600 from 287,000 in May.

USDCAD technical outlook

The intraday USDCAD technicals are turning bearish if today’s breach of the June 6 uptrend line at 1.2980 is confirmed with a close below that level. If not, it suggests 1.2960-1.3070 range trading this week.  A decisive breach targets further losses to 1.2830.

For today, USDCAD support is at 1.2960 and 1.2930.  Resistance is at 1.3010 and 1.3060.  Today’s Range 1.2960-1.3030.

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The better than expected US retail sales report and Fed policymakers giving the “thumbs down” to 100 bp rate increases gave traders an excuse to book profits in long US dollar and short S&P 500 index trades. 

The greenback dropped across the board, with the US dollar index sliding from 109.10 on Thursday to 107.05 this morning. The price action is exaggerated due to thin holiday markets, which won’t change this week with the pre-Fed meeting policymaker blackout, the ECB meeting, and headline risk from Euro-area politics.

Wall Street closed Friday on a positive note and as did Asian stock markets today.  Japanese markets were closed due to the Marine Day holiday while firmer commodity prices boosted Australia’s ASX 200 to a 1.02% gain. European equities rallied by are trading well below their best levels in NY. S&P500 futures suggest a positive open to US markets today. 

EURUSD traded in a 1.0080 to 1.0174 range and is sitting at 1.0128 in NY.  The giants were mainly due to position adjusting ahead of the ECB monetary policy, Thursday. A rate hike is almost guaranteed and the only question is if it is a 0.25% or 0.50% bump. Analysts expect details on the central bank’s plan to create a tool to combat “fragmentation,” a task made more complicated by Italy’s political uncertainty and fears Russia will shut off gas supplies. The intraday EURUSD technicals are bullish above 1.0080, looking for a test of 1.0230.

GBPUSD rose from 1.1865 to 1.1990 in early NY despite UK political turmoil and expectations that the BoE only raises rates 0.25% at the end of the month. GBPUSD needs to break above 1.2000 or risk retreating to 1.1850.

USDJPY is trading a 137.90-138.56 range due to the 10-year Treasury yield sitting at 2.93% and general US dollar weakness.

AUDUSD climbed to 0.6842 from 0.6790, supported by firmer commodity prices and the weaker US dollar.

NZDUSD traded in a 0.6150 to 0.6190 range.  Kiwi got a bit of a boost after ANZ Bank upgraded the RBNZ’s peak OCR rate to 4.0% from 3.5%.

Chart of the Day:  US Dollar Index daily

Source: Saxo Bank

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.7447, previous 6.7503

Shanghai Shenzhen CSI 300 rose 1.04% to 4,292.59

Stocks underpinned by report the CBIREC (Bank Regulator) told lenders to support property development sector

PboC Governor Yi warned the economy faced downward pressure from Covid and external shocks,

Shanghai reports COVID situation remains severe.  While Macau extends lockdown until July 22.

Chart: USDCNY 1 year

Source: CNBC