October 26, 2022

  • Short sterling squeeze triggers broad US dollar sell-off
  • BoC Monetary Policy Report and rate decision ahead
  • US dollar dives in Europe and recoups some losses in NY trading

FX at a glance: 

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3553-57, overnight range 1.3510-1.3637, close 1.3607

USDCAD was caught in the under-tow of the free-falling dollar ahead of today’s Bank of Canada monetary policy meeting and the release of the quarterly Monetary Policy Report. Prices rebounded to1.3565 in NY trading.

Conservative leader Pierre Poilievre and TrudeauNDP politicians rarely agree on anything. However, the pending BoC rate hike has managed to get them singing from the same song book. Poilievre wants to fire the Governor while the NDP branch of the Trudeau government blames the BoC for not protecting workers.

WTI oil prices rallied from $84.21/b to $86.18 on the back of the broadly weaker US dollar. API reported US crude inventories rose 4.52 million barrels, but the news was largely ignored.

USDCAD Technical outlook

The USDCAD technicals turned bearish with the break below 1.3630 but requires a decisive breach of support in the 1.3490-1.3500 area to break the month-long 1.3500-1.3970 range. A break above 1.3640 would extend gains to 1.3730, which if broken shifts the focus to 1.3970.

 Longer term, the break below 1.3580 (38.2% Fibo retracement of September -October range) targets 1.3460 (50% Fibo retracement) then 1.3340 (61.8% Fibo retracement).

For today, USDCAD support is at 1.3490 and 1.3460.  Resistance is at 1.3580 and 1.3630. Today’s range: 1.3510-1.3610

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

FX markets were nearly comatose in Asia before exploding in Europe. The catalyst may have been the slide in the US 10-year Treasury yield from 4.325% last Friday to 4.026% today. Or it could have been belief in the “Fed will pause soon” fantasy. Or maybe traders just needed to bank some profits from stale, long dollar positions, perhaps spooked by BoJ intervention.

Whatever the reason, the US dollar opened sharply lower in NY compared to yesterday.

Asia equity indexes followed Wall Street higher and ignored the disappointing earnings reports from Microsoft and Alphabet. Japan’s Nikkei 225 index closed with a gain of 0.67%. European bourses opened mixed to flat, and all are trading modestly lower except for the German Dax which has gained 0.51%. WTI oil and gold rose with the weaker US dollar.

EURUSD is in the middle of its overnight 0.9944-1.0047 range. Traders are cautious ahead of tomorrows ECB meeting when a 75-bps hike is expected. There were no top-tier Eurozone data releases available.

GBPUSD popped in a massive, short squeeze which has lifted prices from 1.1060 on Friday to 1.1619 overnight. Prices have dropped to 1.1559 in NY as the UK’s economic woes are a long way from being solved. The GBPUSD technicals are bearish below 1.1660.

USDJPY traded in a 146.72-148.41 range undermined by the drop in the US 10-year yield to 4.06% The Traders are also wary after recent BoJ intervention. The BoJ monetary policy meeting is Friday.

AUDUSD rallied from 0.6374 to 0.6496 due to higher-than-expected Q3 inflation (actual 7.3% y/y vs forecast 7.0%). Prices were further supported after some economists raised their RBA rate hike forecast to 0.50% from 0.25%.

US Wholesale Inventories rose 0.8% in September compared to forecast of a 1.0% increase.

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 7.1638, previous 7.1668

Shanghai Shenzhen CSI 300 rose 0.81% to 3656.90

Reuters reports that State-owned Chinese banks sold USDCNY as ordered, to prop up the flagging currency.

Chart: USDCNY 1 month

Source: Saxo Bank