August 12, 2021

July CPI 5.4% y/y unchanged, 0.5% m/m as expected-Still hot, hot, hot

USD dollar dips, stocks rise, and Treasury yields slip, post-CPI

US Senate passes $3.5 trillion budget bill

USDCAD open 1.2534-38, Overnight Range 1.2495-1.2544, Previous close 1.2519

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot

USDCAD was mired in a narrow range overnight, then slipped immediately after the US CPI data.  Traders anticipated higher than expected CPI results, and when that didn’t happen, unwound weak long USDCAD positions.  There are no Canadian economic reports released this week, leaving USDCAD direction at the mercy of US dollar sentiment.

Technical view:  USDCAD has been locked in a 1.2400-1.2600 range since the beginning of the month and is testing the June uptrend line at 1.2490.  A decisive break below will target1.2400, while a move above 1.2550 shifts the focus to 1.2600.   For today, USDCAD support is at 1.2490 and 1.2460.  Resistance is at 1.2550 and 1.26005.   Today’s range 1.2470-1.2550

Chart USDCAD 4 hour

 Source: Saxo Bank

G-10 FX recap and outlook

Today’s US inflation data took on a heightened sense of importance following two consecutive robust nonfarm payrolls reports, and somewhat hawkish Fed-speak.  July CPI rose 5.4% y/y the same as it did in June.  However, the FX reaction was the complete opposite.  The US dollar retreated on the news.

The response is likely just a factor of pre-data positioning.  It appears traders anticipated a higher than forecast result.  Nevertheless, its hard to spin 5.4% inflation as anything but high, especially when the Feds mandate is for inflation around the 2.0% area.

Dow Jones Industrial Average and S&P 500 futures jumped post-CPI, while 10-year US Treasury yields slipped to 1.347% from 1.37%.  Gold prices jumped from $1738 to $1747.  Oil recovered all its initial losses.  Arguably, traders will fade the post-CPI moves.

The Biden Administration hasn’t met a dollar it didn’t want to spend, and it is even spending dollars it hasn’t encountered.  The Democrats passed a $1.0 trillion infrastructure bill  on Tuesday, then the Senate passed a $3.5 trillion budget plan in the wee hours of today.

The latest fiscal stimulus did not ignite a “risk-on” equity rally, although global equity indexes are modestly higher

Chicago Fed President Charles Evans added his voice to the chorus of Fed officials suggesting tapering may occur as soon as year-end.

EURUSD drifted in a1.1707-1.1724 range, until the US CPI data triggered a bounce to 1.1748.  It is a knee-jerk move that has already started to fade .  Today’s data is unlikely to put a cork in the  somewhat hawkish Fed-speak of late, which is putting a cap on EURUSD gains.  German July CPI was unchanged at 0.9% m/m and wasn’t a factor for FX traders.   The intraday EURUSD technicals are bearish below 1.1760.

GBPUSD fell from 1.3840 to 1.3804 overnight, then rallied to 1.3875 after the US inflation data.  Prices have retreated to 1.3850 as the currency pair continues to consolidate gains from July 20, in a 1.3800-1.4000 band.  GBPUSD continues to be underpinned by the modestly hawkish tilt to Bank of England monetary policy.

USDJPY extended gains  from 110.55 to 110.78, in tandem with US 10-year Treasury yields climbing to 1.37% then retraced the move as Treasury yields fell.

AUDUSD and NZDUSD have bounced to the top of their overnight trading bands.  Australia’s August Consumer Confidence report was -4.4 compared to 1.5% previously, due to spreading COVID-19.

Atlanta Fed President Raphael Bostic and Kansas City Fed President Ester George are speaking today.

Chart of the Day- US Dollar Index (USDX)

FX open, high, low, previous close

Source: Saxo Bank