Source: HDClipart

May 6, 2022

  • US nonfarm payrolls rise 428k, Unemployment unchanged
  • Wall Street futures flip-flop post NFP, European equities in the red
  • USD opens firm, consolidating yesterday’s gains

FX change at a glance: 24 hours

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2821-25, overnight range 1.2817-1.2865, previous close 1.2837

USDCAD rallied hard yesterday, rising from 1.2715 to 1.2866, then consolidated the gains in a 1.2817-1.2865 range overnight. The gains were driven by broad “risk-off” demand for US dollar’s after bond trader’s decided that the US 10-year yield of 2.925% did not reflect the level needed to impact inflation.

A surge in oil prices helped the Canadian dollar outperform against the antipodean currencies.  WTI rose from $107.28/b to $110.80, following reports that the EU is close to a deal to ban imports of Russian energy. Prices were underpinned by news that despite Opec increasing production quotas, the cartel is unable pump the higher volume. Opec is reportedly producing 800,000 barrels per day less than the quotas suggest.

Canada’s Labour Force Survey was a tad softer then expected.  Canada added 15,300 jobs while the unemployment rate ticked lower to 5.2% from 5.3%. 

USDCAD is unfazed by the twin US and Canadian employment reports with direction determined by S&P 500 price action.

USDCAD technical outlook  

The USDCAD technicals are bullish after rallying above 1.2820 yesterday, shifting the focus to the major resistance area in the 1.2880-1.3020 zone.  However, previous topside tests have be thwarted and the next on will be as well if prices drop below 1.2820.   USDCAD will bounce between 1.2600-1.2900. until a decisive break above resistance or below support.

For today, USDCAD support is at 1.2820 and 1.2760.  Resistance is at 1.2880 and 1.2910.  Today’s Range 1.2780-1.2880

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Who knew Nostradamus influenced the 1981 version of Black Sabbath?  They warned about how a mob reacts when you listen to fools.  The evidence is on Wall Street and the twenty-four hours following the FOMC announcement. 

The FOMC meeting and Fed Chair Powell’s press conferenced ended Wednesday, and markets kicked off a broad “risk-on” rally.  The mob leaders said, “rates will rise, inflation will fall, but the economy is strong enough to handle the hikes.

The bond mob initially bought what the Fed was selling but then had an epiphany.  The Fed missed all the signs that rising prices permeated the entire economy, so why believe they know what is happening now?  The US 10-year Treasury yield fell to 2.925% Wednesday afternoon and soared to 3.098% Thursday.

Stocks and commodity prices soared, bonds sank, and the US dollar plunged.  Yesterday, the Dow Jones Industrial Average closed over 1,000 points below Wednesday’s end of the day level, dropping 3.12%.  The NASDAQ plunged 5.0%, and the S&P 500 lost 3.57%.

Today’s US nonfarm payrolls report came in unchanged from last month, posting a gain of 428,000 jobs while the unemployment rate remained unchanged at 3.6%.

The job market remains strong, suggesting the Fed can fight inflation more aggressively. 

An economist interviewed by Bloomberg pointed out that the Biden administration is more focused on inflation then employment.  She noted that even if the unemployment rate rose to 5%, 95% of the population is unaffected, whereas when prices rise, everyone notices.

The EU is readying another new package of sanctions on Russia, including on one of Putin’s girlfriends.

EURUSD climbed from 1.0484 to 1.0593 after a flurry of hawkish comments by ECB policymakers.

Bank of Finland governor Ollie Rehn said, “we should move relatively quickly to zero and continue our gradual process of normalization of monetary policy as we have done.”

Bank of France Governor Francois Villeroy said the three conditions of ECB forward guidance for an interest rate rise have been fulfilled.

Germany’s Deutsche Bundesbank President Joachim Nagel chimed in saying “inflation is too high”

Nevertheless, the EURUSD technicals remain bearish below 1.0650.

GBPUSD is not feeling any love.  GBPUSD collapsed following Thursday’s Bank of England monetary policy meeting, falling from 1.2580 to 1.2327, and then spent the overnight session in a 1.2278-1.2379 range.

The BoE hiked rates 0.25%, traditionally the type of move that gives the currency a boost.  But the market was hoping for a bigger increase.  Even worse, BoE Governor Andrew Bailey dismissed the need for larger hikes and the currency got pummeled.  The BoE warned of rising recession risks and predicted negative 0.25% GDP in 2023.  The technicals are bearish with a break below 1.2140, suggesting a retest of the Brexit-eve low of 1.1490.

USDJPY consolidated its post-FOMC gains in a 130.10-130.80 range.  Tokyo inflation jumped to 1.9% y/y in April compared to 0.8% in March.  Even so, the BoJ will stick to its dovish monetary policy.

AUDUSD and NZDUSD traded sideways, consolidating losses following yesterday’s risk-off US dollar rally, and awaiting today’s NFP data.  The RBA monetary policy statement implied further rate increases were coming down the pipe.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.6332   Previous 6.5672

Shanghai Shenzhen CSI 300 fell 2.53% to 3,901.81

Chinese stocks fell in the wake of the Wall Street meltdown and from concerns the economy is slowing due to Covid measures.  Those measures won’t change any time soon. President Xi Jinping chaired the meeting where the Ruling Party demanded all levels of government be united in thinking and actions around the fight against COVID-19.  Zero-Tolerance reinforced

Chart: USDCNY 1 month

Source: Yahoo Finance