- Global equities drop and Wall St futures sinking
- Very chunky USDCAD option expiries today
- US dollar opens firmer-dips after data
FX at a Glance
Source: IFXA Ltd/RP
USDCAD Snapshot: Open 1.2488-92, Overnight Range-1.2473-1.2524, previous close 1.2520
USDCAD tested support levels yesterday, which held, then rallied sharply, rising from 1.2452 to close at 1.2520. The price action mirrored Wall Street moves. The 1.42% slide in the S&P 500 index drove USDCAD higher and knocked crude prices lower. But that was yesterday. USDCAD is on the defensive again.
Prices fell steadily in Asia and Europe reaching 1.2472 just before NY opened and have bounced above the overnight high following the weaker than expected US Retail Sales data which also renewed downside pressure on S&P 500 futures.
Reportedly, there are nearly $3.0 billion of USDCAD option strikes in the 1.2485-1.2500 area rolling off, which may limit downside while another $2.3 billion in maturing 1.2520-30 strikes suggests topside moves will be errtic.
WTI reached $83.26/b overnight which was last seen on November 10, 2021. USDCAD traded in a 1.2385-1.2502 range that day. Food for thought.
As usual, USDCAD direction is dictated by Wall Street price action and the US interest rate outlook. However, the Bank of Canada will also be raising rates, possibly on January 26 Canada/US 2 year spreads favour Canada, which is also a drag on USDCAD gains.
Technical view: The USDCAD technicals are bearish with the steep downtrend from January 6 intact while prices are below 1.2560. The move through the 100-day moving average support at 1.2620 (today) and the 200 day m.a yesterday (1.2698) exerts additional downward pressure targeting support in the 1.2440-50 area. Below 1.2440 opens the door to the October 2021 low of 1.2286. A move above 1.2560 targets 1.2620.
For today, USDCAD support is at 1.2440 and 1.2410. Resistance is at 1.2530 and 1.2560. Today’s Range 1.2440-1.2540
Chart USDCAD daily
Source: Saxo Bank
G-10 FX recap and outlook
Same stuff, different day.
Equity traders get spooked, and US dollar bears get trampled. Overnight, global equity markets felt the repercussions from Wall Street’s mini melt-down, with the major Asia indexes closing deep in the red. Mixed Chinese trade numbers didn’t help sentiment.
European bourses are also in negative territory, but not to the same extent as their Asia brethren.
The UK FTSE 100 is outperformance from robust UK data has faded since the US reports. Wall Street futures falling with S&P 500 futures down 0.8%. while gold and oil prices are higher but off there best levels. The US 10-year Treasury yield is 1.72%.
The US Dollar Index (USDX) snapped the uptrend line from June 2021 yesterday, and consolidated losses in a 94.61-94.93 range.
US Retail Sales fell 1.9% in December compared to 0.2% gain in November. The surge in Omicron cases likely put a damper on spending. However, sales rose 19.2% y/y compared to December 2020.
Russia is not happy that the US/NATO talks didn’t yield any results, and coincidently Ukraine government websites suffered a massive cyber-attack. The EU rapid response cyber unit is poised to help. EU foreign minister Josep Borrel said it was too early to point the finger at anyone but added, “You can imagine who did this.”
A chorus of Fed officials chirped about a March rate hike being the first of three or four in 2022. Fed Vice Chair nominee Lael Brainard seemed to agree. She told her confirmation hearing, “they have projected several rate hikes this year and expect to shrink the balance sheet.”
EURUSD peaked at 1.1482 to then fell to 1.1434 in NY trading. ECB President Lagarde continues to say that Eurozone inflation will drop this year, which was ignored. The EU trade balance posted a surprise € 1.5 billion nsa deficit in November. EURUSD is in an uptrend above 1.1400.
GBPUSD dropped from 1.3742 in Europe to 1.3697 as US Retail Sales data overshadowed the better than expected UK data which included November GDP (actual 0.9% m/m vs forecast 0.4% m/m), Industrial production (actual 1.0% m/m vs forecast 0.2%) and Manufacturing Production. A move below 1.3680 targets 1.3605.
USDJPY traded with a negative bias in a 113.50-114.22 range weighed down by risk aversion sentiment and talk that the BoJ is discussing hiking rates.
AUDUSD and NZDUSD have given back yesterday’s gains but stayed inside their overnight ranges after the US data..
Chart of the Day: US Dollar Index (USDX)
Source: Saxo Bank
FX open, high, low, previous close as of 6:00 am ET
Chart: Saxo Bank
Today’s Bank of China Fix 6.3677, previous 6.3542
Shanghai Shenzhen CSI 300 fell 0.82% to 4,726.73
December Trade Balance US $94.46 billion vs November $71.72 b.
Imports 19.5%/y/y, (previous 31.7%), Exports 20.9% y/y (previous 22% y/y)
Chart: USDCNY 1 month
Source: Yahoo Finance