Source: IFXA Ltd/RP
FX Recap and Outlook: Do you remember the surge in US dollar demand when US 10-year Treasury yields jumped from 1.22% to 1.30%? Traders stampeded out of the so-called risk assets in anticipation of an inflation surge triggered by President Biden’s $1.0 trillion stimulus plan.
US 10-year Treasury yields are now at 1.442%, and the commodity bloc currencies are posting new cycle highs. Traders have decided that Fed Chair Jerome Powell is right in his belief than upticks in inflation will be transitory. They also expect Biden’s stimulus plan to substantially boost US economic growth, easily offsetting a minor gain in Treasury yields. That’s today’s explanation with 10 year Treasury yields at 1.44%. It will be a different answer at 1.75%.
Asia equity markets followed Wall street’s lead and the major indexes closed with gains. European bourses gave back earlier gains and are flat to lower , post US data. Wall Street futures are modestly lower.
US Durable Goods orders rose 3.4% in January and December’s results were revised higher, from 0.2% to 1.2%. Initial Jobless Claims were 730,000 better than the 828,000 last week.
EURUSD traders believe in Jay Powell today more than they did yesterday.
On Day 1 of the Fed Chairs testimony to Congress, EURUSD couldn’t break above 1.2120. He repeated the same message that the Fed will keep interest rates at near-zero percent until “substantial progress has been made toward achieving the Feds mandate, and that “will likely take time.” EURUSD blasted above 1.2180 in Asia and continued rising to 1.2237 in NY trading today. EURUSD got an added boost from the better than expected EU Economic Sentiment Indicator, which rose to 93.4 from 91.5 in January. A break above 1.2270 would extend gains to 1.2350.
GBPUSD broke above 1.4100 yesterday, spiked to 1.4240, and has been consolidated those gains in a 1.4100-1.4175 range. Traders are waiting for details of Chancellor Rishi Sunak new budget expected next week.
USDJPY traders appear to have not gotten the memo about it being a “risk-seeking market.” Instead, they looked at the soaring Treasury yields and drove prices from 105.86 to 106.16 in NY trading.
AUDUSD and NZDUSD rallied on the improved risk sentiment tone. RBNZ Governor Adrian Orr sounded a lot like BoC Governor Tiff Macklem when he spoke about the need to ensure inflation was sustainable before raising interest rates.
OIL traders ignored reports that Opec and Saudi Arabia would end production cuts as of April 1. WTI consolidated yesterday’s gains and traded in a $63.09-$63.76 range, supported by hopes for renewed demand due to a global economic recovery.
USDCAD dropped alongside gains in the antipodean currencies and opened in NY at the session low. The currency pair is undermined by broad US dollar weakness, and steady to higher commodity prices. USDCAD may see further short term weakness due to month-end selling pressures.
US dollar direction will be determined by stock markets and Treasury yields.
USDCAD Technicals: The intraday USDCAD technicals are bearish below 1.2550, looking for a break below support at 1.2450 to extend losses to 1.2380. However, daily Bollinger band and RSI’ suggest the move is overdone, but only a break above 1.2670 would negate the downtrend. For today, USDCAD support is at 1.2450 and 1.2390. Resistance is at 1.2530 and 1.2560. Todays Range 1.2450-1.2510
Chart: USDCAD daily
Source: Saxo Bank
FX open (6:00 am EDT) High, Low, and previous close
Source: Saxo Bank