Source: Flickr

December 21, 2021

  • Yesterday’s fears vanish, sentiment turns positive
  • Global equities rebound, Wall Street futures rise
  • US dollar opens a tad lower, CAD underperforms

FX at a Glance

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2935-39, Overnight Range 1.2916-1.2946, Previous close 1.2944

USDCAD defied broad, but limited, US dollar weakness overnight, and opened with a bit of a bid, as prices continue to flirt within spitting distance of major resistance beginning in the 1.2970 area.

USDCAD has been underpinned since the Bank of Canada monetary policy meeting on December 8, rising from 1.2605 to 1.2961 yesterday. Traders were disappointed with the BoC’s lackadaisical outlook in the face of soaring inflation which contrasts with the Feds’ hawkish turn.

USDCAD is also weighed down by oil price weakness.  The IEA said that restrictions from Omicron and Opec production increases raised the risk of an oil glut in Q1 2022 which helped knock WTI from $72.80/b to $66.16/b yesterday.

Canada Retail Sales are expected rose 1.6% m/m in October compared to -0.6% in September, led by higher sales at motor vehicles and parts dealers. USDCAD barely budged on the news as traders await direction from Wall Street.

Technical view:  The USDCAD technicals are bullish.  The currency pair is testing the top of the November uptrend channel, which is at 1.2980 today, while the base sits at 1.2730. There is plenty of significant resistance in the 1.2970-1.3030 to slow the rally but only a decisive break below 1.2730 will turn the technicals bearish.  Daily Bollinger Band and RSI studies suggest USDCAD is overbought.

For today, USDCAD support is at 1.2905 and 1.2870.  Resistance is at 1.2970 and 1.2990.  Today’s Range 1.2890-1.2970

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Monday’s doom and gloom is but a memory for fickle Tuesday traders.  Risk sentiment turned positive, which may be due to over-imbibing of holiday refreshments.

Asia equity indexes closed with gains, as Japan’s Nikkei 225 motored to a 2.08% gain and Australia’s ASX 200 rising 0.86%. European traders joined the party.  Germany’s Dax index gained 0.98%, leading the parade higher. S&P 500 and DJIA futures have risen 0.87% and 0.80% respectively.  WTI rebounded 1.5% which is down from its best level overnight while gold inched higher.  The US 10-year Treasury yield climbed from 1.365% Monday to 1.456% in NY today.

The price action should be taken with a grain of salt (or glass of egg nog) as markets are in full holiday/year-end mode.

The Omicron virus continues to wreak havoc across the globe, but today, unlike yesterday, traders do not seem to care. 

The Turkish Lira (USDTRY) price action was impressive.  USDTRY plunged from 18.1828 yesterday to 11.1496 today following monetary policy magic by President Erdogan. He announced that the government would guarantee local currency deposits against market fluctuations, which at the very least will increase the government deficit, which is at a record 3.5% of GDP.

EURUSD’s 1.1180-1.1380 range since November is intact but price remain in a downtrend below 1.1340. More ECB officials reiterated the central bank’s dovish outlook today which helped limit gains. The Eurozone growth outlook has taken a turn for the worse as the ongoing energy crisis threatens to derail the recovery.  Russia is choking gas shipments into Germany in a ploy to win concessions over Nato, and the Ukraine.

GBPUSD rallied to 1.3261 in Europe from an Asia low of 1.3200, thanks to broad US dollar weakness as risk sentiment improved.  The  rising tide of new Omicron cases in the UK has the government considering new restrictions which is capping GBPUSD gains.

USDJPY is adrift in a narrow 113.57-113.77 band, underpinned by the bounce in US Treasury yields and the unwinding of some safe-haven trades.  Japanese officials are discussing extending border control measures.

AUDUSD rallied to 0.7139 from 0.7100 with prices getting a boost after the RBA minutes downplayed the Omicron outbreak and maintained a positive outlook.  NZDUSD tracked AUDUSD moves and both currency pairs gained on the shift in risk sentiment.

Chart of the Day:  Turkish Lira (TRY)

Source:  Yahoo Finance

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

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3729, Previous 6.3933

Shanghai Shenzhen CSI 300 rose 0.68% to 4,913.49

Chart: USDCNY 1 month

Source: Yahoo Finance