Photo: Joe Ruby/Ken Spears for CBS

March 28, 2023

  • Markets downgrade banking fears.
  • US Consumer confidence expected to tick lower.
  • US dollar consolidates yesterday’s losses overnight, CAD underperforms.

FX at a glance

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3684-88, overnight range 1.3634-1.3694, close 1.3660

USDCAD fell in early Asia trading, then recovered the losses in Europe. USDCAD direction is closely tracking S&P 500 futures price action and equity traders are not sure of what to do.  Recession and ongoing concerns around the US banking system are offset by hopes for the Fed to cut interest rates in the summer.

USDCAD is also undermined by rising oil prices. WTI has recovered more than half of the March 6 to March losses due to supply disruptions and hopes for renewed Chinese demand. Turkey stopped pumping Iraqi crude after an arbitration board ruled in Iraq’s favour.

USDCAD gains will be limited by rising oil prices while losses will be contained by the 1.3630-50 support area.

The Federal Government publishes its annual fantasy novel today.  This years tome is authored by Finance Minister Chrystia Freeland, will be full of hopeful forecasting, rising deficits and an insincere statement about the governments concern about rising inflation on families. If they were truly concerned, they would scrap the inflation-boosting carbon tax, the auto tax on beer and alcohol, and roll-back dairy price hikes.

USDCAD Technical Outlook

USDCAD continues to bounce inside the well-defined 1.3630-1.3780 range. Today. the intraday technicals flipped to bearish while below 1.3720 and are looking for a break below the 1.3630 area to extend losses to 1.3550.  A move above 1.3720 targets 1.3760, then 1.3790.

Fibonacci retracement of the February 14-March 10 range suggests the 38.2% retracement level at 1.3535 will reinforce existing support.

For today, USDCAD support is at 1.3630 and 1.3580.  Resistance is at 1.3730 and 1.3760.

Today’s range 1.3630-1.3720.

Chart: USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Traders are tip-toing out of March while trying to leave bank failure and recession fears behind. However, current market activity suggests they don’t have the strength of their convictions.

Risk sentiment is mildly positive in Europe after fears Germany’s Deutsch Bank could suffer a similar fate as Credit Suisse, faded, and in the belief that the US authorities managed to stave off a banking crisis. However, there is plenty of speculation about the health of US broker Charles Schwab due to its long-dated bond losses.

Markets are ignoring rising nuclear risks. Putin’s plans to station nuclear missiles in Belarus and North Korea’s Kim Jong-un claims he has nuclear warheads that can be fitted on to short range missiles which can easily strike south Korea.

Asian equity indexes were cautiously optimistic and closed with Australia’s ASX 200 index rising 1.04%. European bourses opened in an upbeat mood but were unchanged by the NY open. S&P 500 futures are pointing to a negative open on Wall Street. The US 10-year Treasury yield is steady at 3.547%.

The US economic calendar is uninspiring.  The highlight may be Consumer Confidence, but trader’s are more focused on US banking risks and equity market performance.

EURUSD firmed in a  1.0797 to 1.0846 range due to expectations for higher ECB rates at the same time US rates may have peaked, with a rate cut possible by the summer.  The intraday EURUSD technicals suggest a decisive break above the 1.0850 will extend gains to 1.1020.

GBPUSD followed EURUSD higher, rising from 1.2283 to 1.2329.  Bank of England governor did not provide any support to the currency during a speech today.

USDJPY is on the defensive, falling from 131.56 to 130.42.  Part of the decline is due to lingering  Japanese corporate year-end flows and because the US 10-year yield rebounded from its low.

AUDUSD traded in a 0.6648-0.6694 range while getting a bit of support from Retail sales data. Traders are looking ahead to tomorrow’s inflation report.

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

Source: Saxo Bank

China Snapshot

Bank of China Fix:  6.8749, Previous: 6.8714

Shanghai Shenzhen CSI 300 fell 0.32% to 3999.51.

Chart: USDCNY 1 month

Source: Bloomberg