- Risk sentiment improves on Russia/Ukraine ceasefire talks
- Japanese officials talking intervention, Day 2 of BoJ YCC operations
- US dollar opens higher, AUD and CAD outperform
FX at a Glance 24 hours
Source: IFXA Ltd/RP
USDCAD Snapshot: open 1.2487-91, overnight range-1.2472-1.2528, close 1.2519
USDCAD has given back all of yesterday’s gains and remains on the defensive due to improved global risk sentiment.
Yesterday, USDCAD rallied to 1.2588 from a pre-NY opening low of 1.2472 due to sliding oil prices, and option expiries, amidst a wibbly equity market. Prices reversed course just before lunch and drifted lower since.
WTI oil traded with a modest bid in a $103.47-$107.64 range overnight then dropped to $100.45 in NY. Following positive comments from Ukraine/Russia negotiators.
USDCAD bounced from 1.2472 to 1.2510 after the news mainly due to EURCAD and GBPCAD demand.
USDCAD gains may be capped by the prospect of higher oil prices as risk sentiment turns positive and crude demand increases.
The latest round of hawkish comments from the Bank of Canada may also act as a drag on gains even though the primary focus for traders is global risk sentiment.
The domestic economic data calendar is empty
USDCAD technical outlook
The USDCAD technicals are bearish. Yesterday’s rally tested the March 17 downtrend line (currently 1.2560) and it held. The subsequent drop below 1.2520 leaves the door open to a test of support in the 1.2420-40 area. A move below this level targets 1.2250, then 1.2000. A decisive break above 1.2560 suggests more 1.2450-1.2650 consolidation.
For today, USDCAD support is at 1.2460 and 1.2420. Resistance is at 1.2520 and 1.2570. Today’s Range 1.2450-1.2550
Chart: USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
There are positive comments from Russia and Ukraine negotiators. The Turkey Foreign Minister claimed the talks were the most significant progress yet and they will continue into the evening.
Markets have embraced the comments as evidenced by the surge in European equity indexes with the German DAX gaining 2.65%. Wall Street futures are sharply higher, and oil prices are lower.
Gold prices have plunged to $1891.03 from an overnight peak of $1929.16 as traders reduce safe-haven trades and refocus on rising interest rates.
Equity traders are blissfully ignoring the economic slowdown risks from rising inflation and recession worries from US Treasury yield curve inversion. Simply put, when the yield on 10-year notes is below that of the 2-year note, it is inverted, a sign of a pending recession. That tends to lead to stock market weakness.
Some investment banks, including JP Morgan, say, “this time is different.” “JP Morgan notes “from the point of curve inversion to the actual peak of the equity market, which typically takes place around a year later, S&P 500 was higher by 15%. They went on to add, “the clock has not started ticking yet, and the upcoming quantitative tightening could matter for the timing, delaying proceedings.”
EURUSD surged following the comments from the Russia/Ukraine talks, rising to 1.1116 from a low of 1.0970 in Europe. The rally is a short-squeeze as traders scramble to protect profits. A decisive break above resistance in the 1.1120-1.1150 area would extend gains to 1.1250.
GBPUSD followed EURUSD higher rising from 1.3053 to 1.3153 with profit-taking exacerbating the move. However further gains may be a struggle after Bank of England Governor Andrew Bailey warned that soaring energy costs may lead to a significant economic growth shock.
USDJPY dropped on broad US dollar weakness, falling to 122.51 from 124.30. The decline was encouraged somewhat, by more verbal intervention. The International Affairs and Finance Ministers expressed concern about yen weakness. The BoJ offered to buy unlimited 10-year JGB’s at 0.25% again, today.
AUDUSD traded lower due to the drop in commodity prices, falling to 0.7458 from .07518. Australia’s 2022/2023 budget forecasts the budget deficit to narrow to AUD78 billion, with GDP rising 3.5%, and inflation at 3.0%.
Chart of the day- Gold XAUUSD
Source: Saxo Bank
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
Today’s Bank of China Fix 6.3640, previous 6.3732
Shanghai Shenzhen CSI 300 fell 0.35% to 4,134.14
Chart: China 1 month
Source: Saxo Bank