May 30, 2022

  • Global risk sentiment improves
  • Oil prices chug higher
  • US dollar opens with losses, JPY outperforms

FX change at a glance:

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.2680-84, overnight range 1.2676-1.2728, close 1.2721,

USDCAD sank along with the G-10 majors due to rising oil prices, and positive risk sentiment fueling broad US dollar weakness.

WTI oil climbed to $116.36/barrel after closing at $115.08/b on Friday. Prices continue to grind higher on fears of supply shortages from Russian sanctions, Opec’s inability to increase production, despite raising quotas, and low US inventories at the start of the summer driving season.

The Bank of Canada is expected to hike rates 0.50% on Wednesday and issue a hawkish statement. If so, USDCAD may underperform, especially if the chatter that the Fed will pause hiking rates In September gains traction. That’s if Russia doesn’t escalate the war in Ukraine.

USDCAD trading volumes will be lower than usual due to the US holiday

USDCAD technical outlook

The intraday USDCAD technicals are bearish. The break below the April uptrend line on Thursday and the drop below the 100 day moving average at 1.2964 targets the 200 day moving average at 1.2659.  Below the latter level, suggest a test of 1.2460.  A move above 1.2800 negates the downward pressure.

For today, USDCAD support is at 1.2660 and 1.2680.  Resistance is at 1.2710 and 1.2750.  Today’s Range 1.2640-1.2720.

Chart: USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

US markets are closed, and the rest of the world is feeling pretty perky. Beijing is easing some of its draconian Covid-19 restrictions, while Shanghai is allowing factories to open June 1, and offering the local government is offering some fiscal stimulus.

Risk sentiment is positive after Friday’s Core PCE data. Traders decided that dip to 4.9% y/y from 5.2% in March was evidence that US inflation may be peaking, supporting Fed policymaker Raphael Bostic’s call for pausing rate hikes in September.

That sentiment is likely to change. Even after the Fed hikes rates in June and July, the Fed funds rate will only be at the September 2019 rate, which will not do much to cool inflation.

The ongoing geopolitical issues are being ignored until someone loses an eye, or a nuclear warhead.

The EU was unable to agree on a Russian oil ban. Today, a plan that bans oil tanker shipments but allows for pipeline deliveries is being discussed.

EURUSD rose from 1.0737 in Asia to 1.0780 in early Toronto trading. EURUSD is feeling perky in anticipation of ECB tightening as Fed rate increases pause. EU May Economic Sentiment was a tick better than expected, as was Services Sentiment. Prices are supported by the shift in risk sentiment as China loosens Covid restrictions. The intraday EURUSD technicals are bullish but the gains are only a correction while prices are below 1.0830.

GBPUSD bounced in a 1.2618-56 range. Support from last week’s fiscal stimulus announcement is fading ongoing recession and renewed Brexit issues are capping gains. GBPUSD trading will get really thin on Thursday and Friday when the UK heads to the pubs to celebrate the Queen’s Platinum Jubilee. The intraday GBPUSD technicals are bullish above 1.2620.

USDJPY bounced in a 126.87-127.39 band with gains capped by the US 10-year Treasury yield, which traded quietly and sits at 2.74%.

AUDUSD rallied from 0.7156 to 0.7192 with prices supported by China easing Covid restrictions. NZDUSD followed AUDUSD higher.

The US is closed for Memorial Day which will suck the life out of trading today.

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

Chart: Saxo Bank

China Snapshot –

Today’s Bank of China Fix 6.7048 Previous 6.7387

Shanghai Shenzhen CSI 300 rose 0.69%% to 4,029.02

Shanghai government offers support package

Beijing begins easing some restrictions

Chart: USDCNY 1 month

Source: Yahoo Finance