January 3, 2024
- FOMC minutes released this afternoon.
- Oil prices slump on US dollar strength.
- US dollar consolidating yesterday’s gains.
FX at a glance
USDCAD Snapshot: open 1.3332-36, overnight range 1, 1.3318-1.3357, close 1.3322
USDCAD caught the updraft from widespread sentiment that the Wall Street equity rally was overdone, and the greenback was oversold. USDCAD rallied in a 1.3229-1.3334 range yesterday then extended the gain in early NY trading.
USDCAD remains a US dollar story and more details of that story will be available this afternoon with the release of the FOMC minutes. USDCAD downside may be limited due to fears that Canada is in, or will soon be, in a recession, which the US has avoided-so far.
USDCAD is also supported by soft oil prices. The US dollar rally weighed on crude but despite the escalation of Houthi attacks on shipping in the Red Sea, WTI cannot get any upward traction. That’s partly because of forecasts that suggest supply of crude will outstrip demand in Q1.
The intraday USDCAD technicals are bullish above 1.3320 and looking for a move above 1.3360 to extend gains to 1.3420 and then 1.3450. However, Bollinger band studies suggest the rally may be losing some momentum and while prices are below 1.3410, the risk is for a retest of the 1.3230 area.
For today, USDCAD support is at 1.3320 and 1.3280. Resistance is at 1.3380 and 1.3410. Today’s range 1.3320-1.3410.
Chart: USDCAD daily
Source: Daily FX
G-10 FX recap
It’s the running of the bulls, Wall Street style. Angry bovines chased US dollar bears down the street and around the globe yesterday, then consolidated their victory overnight. Traders returned from their holiday break to what looked like over-extended equity valuations and somewhat overly aggressive Fed rate cut expectations.
Traders dialed back expectations for a March rate cut to 67% from 70% yesterday, and 74% on December 27, after the US 10-year Treasury yield climbed from 3.81% on December 28 to 3.98% today.
Today’s US December ISM Manufacturing PMI (forecast 47.1, November 46.7) and JOLTS Job Openings (forecast 8.85 million, previous 8.733M) may not attract much attention ahead of this afternoon’s release of the FOMC minutes from December 13. Traders will want to assess the degree of dovishness expressed by the Committee.
Harvard President Claudine Gay resigned over her bungled congressional hearing and persistent plagiarism accusations. Her resignation letter said, in part, “It has become clear that it is in the best interests of Harvard for me to resign so that our community can navigate this moment of extraordinary challenge with a focus on the institution rather than any individual.”
Former President Richard Nixon said similar words when he resigned the presidency on August 8, 1974. He said, “I have concluded that because of the Watergate matter I might not have the support of the Congress that I would consider necessary to back the very difficult decisions and carry out the duties of this office in the way the interests of the nation would require.” Hmm, more plagiarism?
EURUSD dropped from 1.1014 at the open to close at 1.0947 yesterday, then extended the losses in a 1.0920-1.0966 range overnight. Weak German unemployment data for December did not help EURUSD sentiment. The intraday EURUSD technicals turned bearish with the break below 1.0980 and are looking for a test of support at 1.0830.
GBPUSD traded like EURUSD and fell from 1.2760 to 1.2620 yesterday, then drifted in a 1.2615-1.2653 band overnight. The drop was due to widespread demand for US dollars as traders fear the US rate cut outlook may be excessive. The intraday GBPUSD technicals are bullish above 1.2605. However, a break below that level risks further weakness to 1.2500.
USDJPY rallied from 141.86 to 142.88 overnight, despite Japanese markets being closed for a holiday. USDJPY is at the top of the range in NY trading, supported by the rebounding US dollar and higher US 10-year Treasury yields.
AUDUSD is at its session low and trading in a 0.6730-0.6771 range as prices tracked broad US dollar sentiment.
FX high, low, open (as of 6:00 am ET)
PBoC fix: today 7.1002,expected 7.1512 previous 7.0770
Shanghai Shenzhen CSI 300 fell 1.30% to 3386.35.
A Chinese media story claims that a senior Beijing official said that the January 13 election in Taiwan is a choice between peace and war, prosperity and recession.
Chart: USDCNY and USDCNH 1-year