Photo:Bing Image Creator

August 22, 2023

  • Markets struggling for direction amidst economic data voids.
  • China’s sliding currency underscores its economic weakness.
  • USD dollar retreats with Treasury yields.

FX at a Glance

Source: IFXA/R

USDCAD Snapshot:  open: 1.3522-26, overnight range: 1.3525-1.3554, close 1.3545.

USDCAD peaked around noon time yesterday and has drifted lower ever since, falling from 1.3553 to 1.3521 overnight.  The price action mirrored US dollar moves against the majors and occurred on the back of mildly positive risk sentiment. In reality, it is merely thin-market, data-lite distortion.

Oil prices traded quietly in a narrow $80.40-$80.93 range. News that Iraq oil minister is in turkey to discuss the resumption of exports through Turkey, limited upside gains.

USDCAD direction will be determined by the S&P 500 performance (as usual), and at the moment the futures are up 0.37%, suggesting a positive open on Wall Street.

USDCAD Technicals

The intraday USDCAD technicals are bullish above 1.3490, looking for a decisive break above 1.3570 (the 61.8% Fibonacci retracement level of the March-July range) which would extend gains to 1.3670.  A move below 1.3490, and 1.3440 shifts the focus to 1.3380.

In addition there is support from the 200 day moving average at 1.3480 which if broken would target the 100 day moving average at 1.3385

For today, USDCAD support is at 1.3490 and 1.3460. Resistance is at 1.3550 and 1.3580. Today’s range 1.3490-1.3560.

Chart: USDCAD  daily

Source: Saxo Bank

G-10 FX recap

The US dollar rally took a breather overnight due to improved risk sentiment. The US 10-year Treasury yield retreated from yesterday’s peak of 4.355% to 4.308% in NY today, which sparked a round of profit-taking. Traders shifted their focus to China’s economic woes and the People’s Bank of China’s efforts to manipulate the yuan higher. China’s state banks are active in the offshore market and attempting to make holding long USDCNH positions very painful.

The dearth of top-tier actionable economic data has traders reacting to speculation about the tone of speeches from the likes of Fed Chair Jerome Powell and ECB President Christine Lagarde at the Jackson Hole Symposium. We may get more insight from speeches by Chicago Fed President Austan Goolsbee and Fed Governor Michelle Bowman. A couple of weeks ago, Mr. Goolsbee said he wanted to see inflation develop more of a trend before the Fed stops hiking rates. Ms. Bowman was more hawkish and said the Fed needs to keep raising rates. If they stick with those views, markets may assume Powell will utter similar thoughts.

The BRIC summit begins in Johannesburg today. It should be renamed the BIC summit as the Russian President is too afraid to attend due to fears he would be arrested. The International Criminal Court (ICC) issued an arrest warrant for Putin on March 17.

EURUSD rallied to 1.0930 in Europe but dropped to 1.0888 in early NY trading. There is no rhyme nor reason to the price action except to say that prices rejected further gains upon nearing minor resistance in the 1.0950 area.

GBPUSD traded with a bit of bid, rising from 1.2754 to 1.2800 before retreating to 1.2777 in NY. Prices saw a bit of support after a report showed that the UK government’s borrowing costs were less than expected. GBPUSD was also supported by higher equity prices.

USDJPY dropped from 146.39 in Asia to 145.50 in NY today, coinciding with the drop in the US 10-year Treasury yield. In addition, JGB 10-year yields reached a new 9-year peak of 0.66% overnight, leading to speculation that the BoJ will tweak its YCC policy again.

AUDUSD rallied in a 0.6404-0.6458 range due to the improved risk sentiment from rising equity markets. However, gains were capped by negative sentiment about China’s slowing economy.

US Richmond Fed Manufacturing Index and Existing Home Sales data are on tap.

Top of Form

FX high, low, close

Source: Saxo Bank

China Snapshot

Bank of China Fix: today 7.1992, expected 7.3097, previous 7.1997.

Shanghai Shenzhen CSI 300 rose 0.77% to 3758.23.

Mizuho Bank Analysts warn that PboC efforts to manage the yuan will dominate.  State owned banks are soaking up CNH liquidity to lift CNH interest rates and squeeze CNH bears..

Chart: USDCNY 1 month

Source: Bloomberg