August 10, 2023
- US CPI ex-food and energy 4.7% y/y vs forecast 4.8% y/y
- WTI oil climbs to $84.87/b before dipping to $84.14 in NY.
- USD dollar extends overnight losses after inflation data.
FX at a Glance
USDCAD Snapshot: open: 1.3400-04, overnight range: 1.3373.3424, close 1.3423
USDCAD drifted lower overnight with prices tracking broad US dollar moves, rising oil prices, and a shift in the technical picture from bullish to bearish. Prices extended losses after the slightly lower than expected US inflation data and are hovering around support in the 1.3380 area as of 5:45 am PDT.
Oil prices are still climbing with the gains driven by Saudi and Russian production cuts, falling US gas supplies and general US dollar weakness. WTI touched $84.87 in Europe before dropping to $84.02 in NY. Speculative flows are also underpinning prices.
The intraday USDCAD technicals flipped to bearish while prices are 1.3430. A decisive break below 1.3380 targets 1.3330 today. The failure to decisively break above resistance in the 1.3490 area and the overnight break of the August uptrend line suggest further losses to 1.3340 which happens to be the 50% Fibonacci retracement level of the March 2020-May 2021 range.
Longer term, USDCAD is trapped in a 1.3090-1.3490 trading band.
For today, USDCAD support is at 1.3380 and 1.3330. Resistance is at 1.3440 and 1.3490. Today’s range 1.3340-1.3440.
Chart: USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap
The US dollar extended its overnight losses following this morning’s inflation data. The headline Consumer Price Index (CPI) rose by 3.2% (forecasted: 3.3% year-on-year), while Core Inflation ticked down to 4.7% year-on-year from 4.8% in June.
The news wasn’t entirely surprising, but it still managed to significantly boost S&P 500 and Dow Jones futures. However, bond traders appeared less enthusiastic, as the US 10-year Treasury yield only dipped to 3.99% from 4.01%.
Today’s CPI data is positive in the sense that it indicates a slight decrease in inflation. Nevertheless, these results are likely to be quickly overshadowed, as it is the August nonfarm payrolls and CPI data that will hold the most sway over policymakers at the September 20 FOMC meeting.
The optimistic sentiment stemming from the CPI data was dampened by a 21,000 increase in weekly jobless claims to 248,000 from 227,000 the previous week.
Hopes for improved China/US relations were dealt a blow when President Biden issued an executive order banning Americans from investing in Chinese companies involved in semiconductors and quantum computing.
Asian equity indexes closed with modest gains, and European markets are following suit, although the UK FTSE 100 index remains stagnant. S&P 500 futures have gained 0.60%.
EURUSD initially spiked to 1.1067 following the US inflation report, but prices swiftly retreated to 1.1027. The technical indicators for EURUSD turned bullish with the breach above 1.0990, and they anticipate a decisive break above 1.1060 to further extend gains to 1.1150. The ECB Economic Bulletin maintained the possibility of rate hikes, noting that inflation is projected to stay elevated for an extended period.
GBPUSD surged to 1.2818 post-CPI after trading in a 1.2708-1.2773 range overnight. Subsequent gains are improbable until resistance in the 1.2820 area is overcome.
USDJPY experienced fluctuations following the US CPI data but ultimately remains unchanged from its pre-data level. USDJPY maintains a bullish bias above 143.70, with gains supported by weaker-than-expected July Producer Price Index (PPI) data (0.1% vs. forecasted 0.2%).
AUDUSD bounced to 0.6616 post-CPI, then retreated to 0.6585 in New York after trading in a 0.6527-0.6564 range overnight. The announcement that China lifted the ban on group travel to Australia bolstered the currency.
FX high, low, close
Source: Saxo Bank
Bank of China Fix: Today 7.1576 , expected 7.2023, previous 7.1588
Shanghai Shenzhen CSI 300 rose 0.21% to 3975.72.
China ends group travel band to countries including US, UK, Australia, South Korea, and Japan.
Chart: USDCNY 6 month