Source: Image by Gerd Altmann from Pixabay
US PPI rises, Weekly Jobless Claims as expected
Australia COVID-19 lockdowns intensify
IEA downgrades H2 2021 oil demand forecast
USDCAD open 1.2509-13, Overnight Range 1.2504-1.2522, Previous close 1.2504
FX at a Glance:
USDCAD is a spectacular waste of space. The currency pair has no will of its own, blindly following the prevailing US dollar direction. That direction was sideways overnight.
Firmer oil prices are acting as a drag to higher USDCAD rates. Oil traders ignored a smaller than forecast decline in the weekly crude inventories as reported by Energy Information Administration (EIA). The International Energy Agency (IEA) downgraded demand forecasts suggesting growth will be 500,000 barrel/day lower in H2 2021. WTI oil ignored the news.
Technical view: USDCAD remains locked in a 1.2400-1.2600 range that has contained price action for 22 days. Prices have traded higher since June when the Fed took a hawkish tilt, and that uptrend line comes into play at 1.2460. For today, USDCAD support is at 1.2490 and 1.2460. Resistance is at 1.2550 and 1.2605. Today’s range 1.2490-1.2550
Chart USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap and outlook
Weekly Jobless claims were 375,000, exactly as forecast and 12,000 lower than last week. Ho-hum. More interesting was the Producer Price data for July. PPI rose 7.8% y/y, compared to 7.3% in June, while PPI, ex food and energy surged to 6.2% from 5.6%. In the words of Paris Hilton, “That’s hot!”
The PPI data and yesterday’s CPI report (actual at 5.4% y/y in July) suggests inflation may not be as “transitory” as it is billed.
The bottom line is that high readings of PPI, and CPI , suggest the US has an inflation problem.
A chorus of Fed officials appear to agree. They are talking that the time to start tapering is fast approaching. San Francisco Fed President Mary Daly is the latest convert. She said she was optimistic about ongoing improvements in key variables and said, ”talking about potentially tapering those later this year or early next year is where I’m at.”
EURUSD dipped to 1.1728 after the PPI and jobless claims data. Even so, the EURUSD range is a narrow 1.1728-1.1747 band as a dovish ECB outlook and the rising risk of Fed tightening weighs on the single currency. Eurozone Industrial Production data was a tad softer than expected, but it wasn’t a factor.
The EURUSD bias is lower while prices are below 1.1770.
GBPUSD chopped in a 1.3839-1.3877 range with the low occurring after today’s US data. The UK economy surged 4.8% in the April-June quarter, which bodes well for the rest of the year supporting by declining numbers of COVID-19 cases.
USDJPY traded lower after the US CPI data drove US 10-year Treasury yields down. It consolidated its losses in a 110.33-110.47 range overnight.
AUDUSD and NZDUSD traded similarly. Both currency pairs have given back some of their post-US CPI gains. AUDUSD is also suffering from economic growth concerns due to rising COVID-19 restrictions and lockdown measures in Australia.
Chart of the Day- S&P 500 monthly
FX open, high, low, previous close
Source: Saxo Bank