Source: Wikimedia commons
FX Week at a Glance:
USDCAD Snapshot Open 1.2926-30, Overnight Range 1.2816-1.2947, Previous close 1.2828
USDCAD spiked higher overnight, extending losses that began on Monday. USDCAD rallied from 1.2514 in Asia on Monday to 1.2947 just before Europe opened today. The move is highly correlated with the slide in WTI oil from 68.23/b Monday to $63.43/b today. Higher than expected Canadian inflation data didn’t matter and neither does to Retail Sales report.
July Retail Sales rose 4.2% m/m compared to a drop of 2.1% in June. The gains were due to the economy reopening in large parts of the country.
Were global investors were spooked by the latest comments from Prime Minister Trudeau? What else explains the 1.44% rally in USDCAD since yesterday’s NY open. Wednesday Trudeau said, “When I think about the biggest, most important economic policy this government, if re-elected, would move forward, you’ll forgive me if I don’t think about monetary policy.” He is also an advocate of “self-balancing” budget. Global investors appear to have decided that it is unwise to own a currency of a country with a budget deficit that soared to around $400 billion from $20 billion in 2020 and is led by a fiscally -challenged Prime Minister described by Australian journalist Rita Panahi as “an all style, no substance bimbo with the intellectual depth of a puzzle.”
USDCAD is also underpinned by negative global risk sentiment due to spreading coronavirus Delta-variants and concerns the US will begin withdrawing monetary stimulus by year end.
Technical view: The USDCAD technicals are bullish. The break above 1.2800 accelerated gains to the triple top resistance level seen between November 25-27, 2020, with a move above that level opening the door to 1.3000 then 1.3030. The steepness of the gains suggests a dip to 1.2800 is possible, but only a break below 1.2570 would negate the uptrend. For today, USDCAD support is at 1.2890 and 1.2840. Resistance is at 1.2950 and 1.3000. Today’s range 1.2840-1.2940
Chart USDCAD daily one year
Source: Saxo Bank
G-10 FX recap and outlook
It’s a risk-off world. Asia equity indexes tumbled led by a steep drop in the Shanghai Shenzhen CSI 300 index. That weakness set the stage for European bourses which are lower as are S&P 500 and DJIA futures. Oil prices extended losses while gold prices are modestly firmer. US 10-year treasury yields are steady at 1.235%.
Traders are buying US dollars and Japanese yen as safe-haven currencies. Escalating risks of a global economic slowdown from China’s ham-fisted regulatory actions, and the potential for higher US interest rates. Spreading COVID-19 delta-variant outbreaks is another concern.
EURUSD appears comfortably below 1.1700, although prices drifted in a tight 1.1672-1.1688 range. ECB officials have been quiet even as Fed policy makers advocate for a start to tapering by year end. The EURUSD technicals are targeting 1.1600 on a break below 1.1650.
GBPUSD is caught up in the wave of negative risk sentiment and dropped to 1.3611 from 1.3640. Prices were also undermined when Retail Sales fell 2.5% m/m in July, well below expectations for a 0.4% increase. The intraday technicals are bearish below 1.3710.
USDJPY is steady in a 109.58-109.88 range, with prices weighed down by risk aversion sentiment and wobbly Treasury yields.
AUDUSD and NZDUSD are weighed down by negative risk sentiment and soft commodity prices. RBNZ Governor Adrian Orr, suggested that a rate hike at the October meeting was a real possibility and said coronavirus cases along would not stop an increase.
Canada Retail Sales are expected to climb 4.4% in July, but the results will be overshadowed by broad risk sentiment.
Chart of the Day-
Source: market index.com
FX open, high, low, previous close
Source: Saxo Bank
Today’s Bank of China Fix, 6.4984 Previous day 6.4860
Shanghai Shenzhen CSI 300 fell 1.91% to 4769.27
PBoC leaves interest rates unchanged: 1-year Loan Prime Rate 3.85%, 5-year Lone Prime Rate 4.65%
Chart: USDCNY 1 month
Source: Yahoo Finance