July 19, 2022

  • Russia turns up heat on EU as Gazprom declares “Force Majeure
  • EURUSD jumps on 0.50bps rate hike speculation
  • US dollar opens soft on fresh “risk-on” sentiment

FX at a glance:  

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2944-46, overnight range 1.2932-1.2988, close 1.2984

USDCAD is the ping pong ball in the US dollar-S&P 500 table tennis game. Prices peaked at 1.3023 in Asia yesterday then dropped to 1.2900 in the NY morning before rebounding to 1.2984 when markets closed.  Prices inched down overnight and are just above the session low in NY.

The moves are exaggerated due to reduced liquidity during the “summer doldrums,” and because Fed policymaker commentary is banned until the FOMC meeting next week.

Oil price swings are adding to USDCAD volatility.  WTI bounced between $95.88/barrel yesterday to $103.41/b overnight, before dropping to $100.70/b in NY. Prices continue to be underpinned by expectations oil demand will continue to outpace supply.

The Canadian economic data calendar is empty.

USDCAD technical outlook

The intraday USDCAD technicals are modestly bearish while trading below 1.2970 (hourly chart) looking for a decisive break below the 1.2900-20 area, to extend losses to 1.2820.  A break above 1.2980 suggests additional 1.2920-1.3080 consolidation.

For today, USDCAD support is at 1.2920 and 1.2890.  Resistance is at 1.2980 and 1.3010.  Today’s Range 1.2910-1.2980.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

The heat is on. All across the Eastern US and Canada, temperatures are in the sweltering range, while a larges swath of Europe is mixing killer high temperatures with forest fires. Russia rubbed salt into the heatwave wound by declaring “Force Majeure” on gas shipments to the EU. Force Majeure essentially means unforeseeable circumstances. It is pronounced “screw you, EU” in Russian.

Declarations of “Force Majeure” are not limited to Russia. Canada’s TC Energy declared invoked the term on the Keystone Pipeline due to a power supply failure in South Dakota. There were no reports of stranded motorists because they couldn’t charge their Electric Vehicles, mainly because it is F-150 country.

US futures traders are unmoved by the EU gas developments. S&P 500 futures have gained 0.87%, shrugging off news that Apple and Goldman Sachs plan to slow hiring and focused on upcoming corporate earnings reports, notably Netflix, at the end of today.

EURUSD is hot and not just because of the temperatures. The single currency soared to 1.0269 from 1.0121 and is drifting at the top in NY after a Reuters story said the ECB would discuss bumping rates 0.25 or 0.50 bps.

The odds for a 50bp hike jumped to 60% from 25% yesterday.   Big Deal.

A 0.50% hike would lift the deposit rate from negative 0.50 to 0%. “Take that inflation!”

The higher than expected rate hike story got additional support after EuroStat said, “Eurozone inflation The euro area annual inflation rate was 8.6% in June 2022, up from 8.1% in May. A year earlier, the rate was1.9%. European Union annual inflation was 9.6% in June 2022, up from 8.8% in May.”  The results were expected.

GBPUSD rallied from 1.1927 to 1.2039 before easing down to 1.2020 in NY. Broad US dollar weakness combined with a relatively strong UK employment report underpinned the currency pair. Even so, ING economists do not believe the results make a compelling argument for a 0.50 bp rate hike over a 0.25% increase.

USDJPY is trading at the bottom of its 137.50-138.38 range due to general US dollar weakness while ignoring the tick higher in the 10-year Treasury yield to 2.991%. Traders are awaiting tomorrow’s Bank of Japan monetary policy meeting, although no changes are expected.

AUDUSD climbed from 0.6804 to 0.6901 due to higher commodity prices and hawkish RBA minutes.

Deputy Governor Michele Bulloch indicated that not only do rates have to rise to neutral, neutral is a fair bit higher than where rates currently sit.

NZDUSD rose due to positive risk sentiment and higher commodity prices, climbing from 0.6143 to 0.6235.

Today’s data includes US Building Permits and Housing Prices.

Chart of the Day:  EURUSD 15 minute

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 6.7451, previous 6.7447

Shanghai Shenzhen CSI 300 fell 0.54% to 4,269.34

Chinese authorities reportedly providing emergency funding for unfinished home construction projects and in some cases will buy a troubled project.

Chart: USDCNY 1 year

Source: CNBC