July 27, 2023
- Fed hikes 25 bps to 5.50% which traders believe is the “peak.”
- ECB raises rates 25 bps as expected.
- USD grinding out gains after opening with losses.
FX at a Glance
USDCAD Snapshot: NY open: 1.3176-80, overnight range 1.3160-1.3210, close 1.3207
USDCAD is trading with a negative bias following speculation that yesterday’s 25 basis points (bp) Fed rate increase is the last hike for this cycle. The selling pressure was reinforced when the Bank of Canada released its Summary of Deliberations (minutes) from the July 12 meeting. They didn’t offer up anything new but served to put traders on notice that Canadian rates can still rise further.
USDCAD is also seeing selling pressure from the rise in oil prices. WTI oil has climbed all month, rising from $69.62 on July 3 to $79.77/b overnight, a 12.7% gain. The combined Russian and Saudi Arabian production cuts, China’s latest stimulus tweaks, and forecasts of rising H@ demand are driving prices higher.
There are no domestic economic reports today.
USDCAD Technical Outlook
The USDCAD technicals are bearish below 1.3240, looking for a break below 1.3140 to target 1.3090, then 1.2980. A move above 1.3250 suggests more 1.31400-1.3400 range trading.
The uptrend line from May 2021 comes into play in the 1.2990-1.3000 zone.
For today, USDCAD support is at 1.3140-nd 1.3090. Resistance is at 1.3210 and 1.32500. Today’s range 1.3110-1.3210.
Chart: USDCAD 4 hour
Source: Saxo Bank
G-10 FX recap
There were no surprises from Fed Chair Jerome Powell and company following yesterday’s FOMC meeting. The 25 bp rate hike to 5.50% was almost unanimously expected. Mr. Powell said that future rate increases would be “data-dependent,” which suggests the Ouija Board has been retired.
The CME Fed watch tool shows that traders believe Wednesday’s rate hike was the final increase for this cycle, and after today’s data now expect the first rate cut to be in June 2024.
Q2 GDP rose 2.4% y/y while June Durable Goods Orders rose 4.7% m/m, easily beating the 1.0% Initial jobless claims dropped by 7,000 to 221,00. Rates may not be rising any further, but the data suggests the Fed may have achieved a soft landing.
Asian equity indices closed with gains, with Australia’s ASX 200 rising 0.73%, while Japan’s Nikkei 225 index gained 0.66%, with risk sentiment improving after Meta reported better-than-expected Q2 results and an optimistic Q3 outlook.
European bourses are higher and the French CAC 40 index is leading the parade with a 1.83% gain. S&P 500 futures are up 0.77% as of 5:52 am PDT.
EURUSD traded with a bullish bias in a 1.1079-1.1149 range overnight, then dropped to 1.1049 in the wake of the US data. The focus shifts to the ECB President Lagarde’s press conference which is ongoing as this is being written. The 0.25% rate hike to 3.75% was a given.
In addition, there are very chunky options maturing today, including $4.5 billion of 1.1100-1.1115 strikes and 1.875 billion of strikes in the 1.1150-1.1185 area.
GBPUSD traded in a 1.2883-1.2694 range, with the intraday low occurring following the better-than-expected US data.
USDJPY dropped from 140.24 at the NY close to 139.24 in Asia before rallying to 140.77 after the US 10-year Treasury yield rose from3.869% to 3.893% . The BoJ will leave monetary policy unchanged on Friday.
AUDUSD rallied, rising from 0.6758 to 0.6820 then gave back all the gain in NY trading following this mornings robust US economic data.
FX high, low, previous close
Bank of China Fix: 7.1265 , forecast 7.1468, previous 7.1295.
Shanghai Shenzhen CSI 300 fell 0.12% to 3902.35.
.Chart: USDCNY 6 month