June 10, 2021

US May CPI  rises 5.0% (forecast 4.7% y/y, April 4.2%)

ECB leaves rates unchanged-Confirms “significantly higher” PEPP

BoC Deputy Governor Timothy Lane speech at1:00 pm ET

USDCAD open 1.2109-13, Overnight range 1.2105-1.2123,  Previous  close 1.2111

FX at a Glance

FX Recap and outlook

The highly anticipated US May CPI data  was better than expected  May CPI climbed 0.6% m/m, higher than the forecast for a 0.4% increase, but below April’s 0.8% rise.

Weekly jobless claims dropped 9,000 to 376,000 for the week ending June 4

The data, as William Shakespeare once wrote, It is “much ado about nothing.”

The data confirmed the US economy is firing on all cylinders, but it isn’t enough to force the Fed to change its dovish monetary policy outlook.  The Fed expected higher inflation, but believes it is “transitory.”

US 10-year Treasury yields popped to 1.51% from  a pre-CPI reading of  1.496%  but are well below Monday’s peak of 1.562% . Even so, yields are at levels that clearly indicate traders have swallowed the dovish Fed message, hook, line, and sinker.

The US dollar traded erratically around the data releases and ended up modestly lower.

Overnight price action was uninspiring.  Asia equity indexes closed modestly higher, except the Hong Kong Hang Seng, which was flat.   Japan’s Nikkei 225 index gained 0.34%, supported by reports the government is discussing a major new fiscal stimulus plan for July.  European bourses are slightly lower into the ECB press conference, except for the UK FTSE 100.  S&P 500 futures are hovering around flat. 

EURUSD tis trading above the overnight range of 1.2155-80 band, into ECB President Christine Lagarde’s press conference.  The ECB left policy rates unchanged and repeated that they expect “net purchases under the PEPP over the coming quarter to continue to be conducted at a significantly higher pace than during the first months of the year.”  Some analysts expected PEPP to be reduced in recognition of the recent string of robust Eurozone economic reports.

GBPUSD dropped from 1.4124 to 1.4075 before rebounding to 1.4154 in NY, after the data. Traders ignored RICS Housing Price data but may have been spooked by ongoing Brexit issues around the Irish Protocol.

USDJPY traded narrowly in a 109.50-109.67 bandTraders are ignoring reports about a  talk of a new government stimulus plan in the summer and the possibility of an election in September.

AUDUSD and NZDUSD  tracked broad US dollar movements wand both currency pairs are near their overnight peak levels.  News that ANZ Bank is forecasting the RBA to raise rates twice in 2023 did not have any impact.

WTI oil prices dropped from $70.60 to $69.50 yesterday as positions were adjusted ahead of today’s US CPI.  Traders ignored the EIA report that crude inventories fell 5.2 million barrels in the week ending June 4.  That changed overnight, and prices climbed to $70.50 in NY.

USDCAD dropped to 1.2055 immediately after the Bank of Canada monetary policy statement yesterday, then promptly reversed course and climbed to 1.2117 before closing at 1.211.  The BoC statement lived up to expectations for a non-event.

The BoC left interest rates unchanged at 0.25% and kept Quantitative Easing (QE) purchases at $3.0 billion per week.  The statement noted “first quarter GDP growth came in at a robust 5.6 per cent,” which they attributed to rising confidence and resilient demand.

The BoC noted that “As expected, CPI inflation has risen to around the top of the 1-3 percent inflation-control range,” but they dismissed the increase, saying it was  due to base year effects and higher gasoline prices.

At 10:00 am PT, Bank of Canada Deputy Governor Timothy Lane speaks about “the digital transformation and Canada’s economic resilience”.

USDCAD technical outlook

The USDCAD technicals are unchanged.  Prices are trapped inside a 1.2000-1.2150 range until fresh fundamentals or data drive prices outside that band.   For today, USDCAD support is at 1.2070 and 1.2040.  Resistance is at 1.2120 and 1.2140   Today’s range 1.2040-1.2130

Chart USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank