Photo: Pixabay

December 19, 2022

  • Market rate hike pricing at odds with Fed dot-plot
  • Risk sentiment leaning toward positive in thin, year-end markets
  • US dollar opens lower compared to Friday.

FX at a glance:

Source: IFXA Ltd/RP

USDCAD Snapshot: open 1.3646-50, overnight range 1.3632-1.3689, close 1.3697

USDCAD rallied on the back of falling equities Friday, recouped most of the losses in European trading overnight, then bounced to 1.3660 in NY.

USDCAD direction remains at the mercy of risk sentiment measured by S&P 500 index moves. The USDCAD is also underpinned by divergent BoC and Fed interest rate outlooks. The BoC indicated it is ready to pause rate hikes while the Fed plans to raise rates by 75 bps, according to the dot-plot projections.

USDCAD is also underpinned by weak oil prices. WTI is above its recent lows but has fallen steadily since November 7 due to US recession fears. The intraday technicals are bearish below $77.00/b.

Canada Industrial Product Price index fell 0.4% m/m in November and the Raw Material Price index fell 0.8%

USDCAD technical outlook.

The intraday technicals are bullish above 1.3630, looking for a break above 1.3705 to extend gains to 1.3750, then 1.3800.  A move below 1.3630 targets 1.3570.

Longer term, the USDCAD technicals are bullish above the uptrend line from November 16, at 1.3520, looking for a break above 1.3700 to extend gains to 1.3850 then 1.4000 on a daily chart. A break below 1.3520 targets 1.3400.

For today, USDCAD support is at 1.3630 and 1.3570.  Resistance is at 1.3690 and 1.3730

Today’s range 1.3620-1.3720

Chart: USDCAD daily 3 months

Source: Saxo Bank

G-10 FX recap and outlook

Argentina is celebrating while France is in mourning following the exciting World Cup final game. Nasdaq bears are also celebrating, especially those who shorted the index at the beginning of the year and closed their books Friday with a 31.14% gain.

US dollar bulls are feeling the pain after the greenback dropped overnight, even though those losses are barely show-up when compared to the greenbacks year-to-date performance, especially against JPY which lost 18.36%, year-to-date, CAD down 7.92% and GBP down 9.84%.

It is year end and price actions are distorted by low volumes which helps explain why the US 2-year yield is near recent lows despite the Fed dot-plot forecasting higher rates.

Asian equity indexes followed Wall Street’s lead and closed with losses across the board. Japan’s Nikkei 225 lost 1.05% and Australia’s ASX 200 dropped 0.21%. European trades adopted a different outlook, and the French CAC 40 index is leading the others higher with a 0.77% gain.

S&P 500 futures gained 0.60% but prices are only 0.20% higher. WTI oil and gold are posting gains from Friday’s closing levels.

The US 10-year Treasury yield drifted higher overnight and is 3.563% in NY.

EURUSD rallied from 1.0582 in Asia to 1.0653 in Europe, after a robust German Ifo report, then dropped sharply to 1.0600 in early NY trading. Low volumes exacerbated the volatility.

The Ifo statement said “Sentiment in the German economy has brightened considerably. The business climate index rose to 88.6 from 86.4. Expectations also improved noticeably. German business is entering the holiday season with a sense of hope.”

Bullish sentiment following President Christine Lagarde’s press was reinforced by comments from policymakers de Guindos and Kasimir, but it failed to support the single currency.

GBPUSD mirrored EURUSD moves overnight, rising from Fridays close of 1.2314 to 1.2241 in Europe, before sliding to 1.2168 in NY.

The GBPUSD technicals are bearish. Thursdays drop below 1.2290 snapped the uptrend from November 3 and the new downtrend is intact below 1.2230. A decisive break below support at 1.2120 targets 1.2020. Divergent Fed and BoE interest rate outlooks weighs on the currency pair.

USDJPY is at the top of its 135.77-136.66 range due to soft US Treasury yields. There is a lot of chatter about the Bank of Japan tweaking its inflation forecast in 2023, but analysts suggest nothing will happen until after Governor Kuroda retires in April.

AUDUSD traded in a 0.6684-0.6731 range and sits at 0.6710 in NY with prices tracking broad US dollar sentiment.

NZDUSD underperformed and dropped from 0.6408 to 0.6367 following the weakest Westpac Consumer Confidence report in 30 years (actual Q4 75.6 vs Q3 87.6).

There are no top tier US economic reports today.

FX open, high, low, previous close as of 6:00 am ET

Source: Saxo Bank

China Snapshot

Today’s Bank of China Fix: 6.9746, previous 6.9791

Shanghai Shenzhen CSI 300 fell 1.54% to 3893.22

China Central Economic Work Conference says China will focus on stabilising its economy in 2023 and ensure key targets are met. Beijing has removed/amended 126 covid-19 prevention measures despite reports of rising covid cases and deaths.

Chart: USDCNY year-to-date

Source: Bloomberg