July 5, 2022

  • EURUSD heading to par as ECB rate hike risks dim
  • Australia’s RBA hikes 0.50%-No joy for AUDUSD bulls
  • US dollar grinds higher, CHF outperforms

FX at a glance:  July 1-open to July 5 open

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2925-29, Range July 1-5 open 1.2837-1.2992, close Jun 30 1.2873

USDCAD bounced erratically in a 1.2837-1.2940 range since Thursday’s close and opened with a bid in NY. Prices climbed to 1.2992 in tandem with sliding S&P 500 futures which erased all Monday’s gains, albeit in thin trading conditions.

The BoC Business Outlook Survey, released Monday, highlighted concerns about high inflation and elevated capacity pressures.  The survey noted that wages are expected to rise about 5.8%. Nothing in the report will dissuade the BoC from hiking rates 0.75% next Wednesday.

WTI oil prices are choppy in a $107.28-111.41 range.  JPM analysts gave prices a bit of support when they predicted that WTI could hit $380.00/b in a scenario that saw Russia slash its crude production.  The analyst suggested that even if Russia produced just 5.0 million barrels/day, it would be harmful to Western economies but tolerable for Russia.

Canada Building permits ticked lower in May, dipping to 2.3% m/m from 2.4%.

USDCAD technical outlook

USDCAD is consolidating gains after snapping the downtrend that began May 16.  The break above the 1.2750-60 area fueled a spike to 1.3075 on June 17, and prices have bounced between 1.2800-1.3050 since.  The uptrend line from May 2021 is intact while prices are above 1.2550.

For today, USDCAD support is at 1.2905 and 1.2870. Resistance is at 1.3010 and 1.3050. Today’s Range 1.2940-1.3030

Chart: USDCAD  4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Fireworks were lighting up the skies across America yesterday and in the EURUSD market overnight. The single currency is being pummeled by fears of a looming recession caused by punitive measures against Russia and rising inflation woes. A series of weak economic reports lowered risks for aggressive ECB rate hikes. EURUSD support in the 1.0350 area, which had contained losses since 2015, evaporated today and prices dropped to 1.0282.

It wasn’t all doom and gloom overnight. China’s Caixin Services PMI data was better than expected, and China plans to set up a CNY 500 billion infrastructure fund. The icing on the cake is news that US Treasury Secretary Yellen is considering easing some tariffs. On the other hand, she scolded China for supporting Russian propaganda.

Asia stock markets closed firmer led by a 1.03% rise in Japan’s Nikkei 225 index.  European bourses are having a bad day, with Germany’s Dax dropping 2.48% and dragging the other major bourses lower.

The US 10-year yield is 2.894% due to safe-haven demand from recession fears.

GBPUSD traded with a negative bias in a 1.1961-1.2179 range since Friday. Bank of England officials are not doing the currency any favours. BoE Governor Andrew Bailey warned “Household finances are under pressure from higher interest rates and the rise in prices. We expect household finances to become more stretched in the year ahead.”  Train drivers are on strike, making commuting a nightmare, while Royal Mail managers are discussing strike options.

GBPUSD could test its Brexit low of 1.1450.

USDJPY continues to churn in its well-defined 134.30-137.00 range. Safe haven demand for yen and lower US treasury yields are driving price action. The intraday USDJPY technicals are bullish above 135.50.

AUDUSD is trading just above its overnight low after bouncing in a 0.6765-0.6894 range. The RBA raised rates 0.50% as expected, and the statement failed to offer any new insight.

US Factory orders are ahead.

Chart of the Day:  EURUSD 20-year

Source: Saxo Bank

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

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.6986, July 4, 6.7071

Shanghai Shenzhen CSI 300 fell 0.14% to 4,489.54

Caixin June Services PMI 54.5 vs forecast 47.3, May 41.4.  Composite PMI 55.4 vs May 42.2.

 Chart: USDCNY 1 month

Source: Yahoo Finance