July 18, 2024
- ECB leaves rates unchanged, surprising no one.
- President Biden has Covid but market only cares about Trump
- US dollar opens little changed from close but down since Wednesday’s open.
FX at a Glance
Source: IFXA/RP
USDCAD open 1.3676, overnight range 1.3671-1.3689, previous close 1.3684
USDCAD was largely ignored in a quiet overnight session, but the downside is underpinned by expectations for another Bank of Canada (BoC) rate cut. The BoC will likely cut rates to 4.50% from 4.75% next week. Even so, USDCAD gains are being hampered because of large, speculative short Canadian dollar positions while the downside is supported by fears that another Trump presidency is a negative for Canadian economic growth.
WTI oil is at the bottom of its 81.19-82.27 overnight range. Prices were unable to get any sustainable upward traction despite the Energy Information Administration (EIA) reporting a 4.87 million barrel decline in US crude inventories.
US weekly jobless claims rose by 20,000 to 243,000 which reinforced the “cooling labour market argument while the Philadelphia Fed Manufacturing Survey improved to 13.9 from 1.3.
USDCAD Technicals
The USDCAD technicals are bullish above 1.3660, looking for a break above 1.3690 to extend gains to 1.3720.
The uptrend channel that began last week suggests a retest of 1.3790 while prices are above 1.3660. A move below 1.3660 just delays the inevitable unless the massive support cluster between 1.3580 and 1.3610 is decisively broken.
For today USDCAD support is at 1.3660 and 1.3630. Resistance is at 1.3710 and 1.3740. Today’s range is 1.3660-1.3720
Chart: USDCAD 4 hour
Source: DailyFX
The Trump Effect
The Butterfly Effect is a concept from chaos theory which suggests that small changes or actions can have large, unpredictable consequences over time. It’s often illustrated by the idea that the flap of a butterfly’s wings in one part of the world could eventually cause a tornado in another part. Donald Trump has the same effect on financial markets.
In a Bloomberg interview, the president-to-be proclaimed, “We have currency problems, as you know. Currency. When I was president, I fought very strongly and hard with President Xi and with Shinzo Abe. So we have a big currency problem because the depth of the currency now in terms of strong dollar/weak yen, weak yuan, is massive.” So it’s no surprise that the Chinese yuan and Japanese yen devalued sharply when Trump’s comments were published. The rise of Trump has pushed President Joe Biden’s frailty off the front pages. Mr. Biden has Covid, and all markets care about is, “What will Donnie do?”
Tech Stocks Unnerving Equity Traders
The ongoing nasty tech stock correction knocked the NASDAQ down by 2.77% yesterday, which sounds horrific until you realize that it is still up 21.33% year to date. Still, it was enough to spook Asian equity traders. Australia’s ASX 200 closed down 0.27%, while Japan’s Topix lost 1.60%. European traders are more optimistic, with a 0.68% gain in the UK FTSE 100 leading the other bourses higher. S&P 500 futures are up a modest 0.11%. The US 10-year Treasury yield rose from yesterday’s close at 4.145% to 4.189%. Gold prices (XAUUSD) continue to climb and have risen from $2297 on June 27 to $2474.94 overnight.
EURUSD
EURUSD is steady in a 1.0926-1.0941 range and the ECB statement did not have any impact on trading. The press conference begins shortly. The statement included the usual blather about interest rate decisions being based on its assessment of incoming economic and financial data. EURUSD trading may be volatile into the 10:00 am EDT option expiry window. There are $4.5 billion of EURUSD strikes between 1.0880-1.0905 expiring, with another $2.0 billion of 1.0930-50 strikes.
GBPUSD
GBPUSD traded defensively in a 1.2981-1.3014 range, with the bottom being hit in the wake of the UK employment report. Today’s data shows that the job market is cooling and wage growth is slowing. Average earnings rose 5.7% (March-May) compared to 5.9% previously, which raised the odds for an August 1 Bank of England rate cut to 40% from 35%.
USDJPY
USDJPY dropped to 155.38 in the early going in Asia, before rallying back to 156.59 in early NY trading. The heavy hand of the BoJ and recent comments by soon-to-be president, Donald Trump, about yen weakness are keeping the negative pressure on prices.
AUDUSD and NZDUSD
AUDUSD bopped and weaved in a 0.6715-0.6744 range following the release of a somewhat mixed unemployment report and has settled at 0.6735 in NY trading. Employment rose by 50,200 in June, easily topping the forecast for a 20,000 increase and the 39,500 gain seen in May. The unemployment rate rose to 4.1% from 4.0%. The results support expectations for the RBA to leave rates unchanged for the rest of the year.
NZDUSD traded defensively in a 0.6064-0.6085 range. Prices were weighed down by recent weaker-than-expected inflation data, which raised the odds that the RBNZ will cut rates this year, and by China’s ongoing economic woes.
USDMXN
USDMXN consolidated recent gains in a 17.6861-17.7655 range as traders weigh the risks of a new Trump presidency and planned economic reforms by President Claudia Sheinbaum with benefits from the “carry trade.” Earlier this week, the IMF downgraded its Mexican GDP forecast for 2024 to 2.2% from 2.4%.
Bitcoin (BTCUSD)
BTCUSD traded in a 63,958-65,536 range in an uneventful session. The downtrend line from the June 7 peak was broken with the move above 60,735 on Monday, but it is meeting resistance in the 65,750-66,000 area.
FX high, low, open (as of 6:00 am ET)
Source: Investing.com
China Snapshot
PBoC fix: 7.1285 vs exp. 7.2587 (prev. 7.1318).
Shanghai Shenzhen CSI 300 rose 0.55% to 3520.93.
Chart: USDCNY and USDCNH
Source: Investing.com
