Photo: Clipart Panda

April 14,2021

Reflation trade getting battered

A choir of Fed-speakers on tap today

US dollar extends post-CPI slide

USDCAD open  1.2548-52 Overnight Range 1.2533-1.2560, close 1.2534

FX at a Glance

Source: IFXA/RP

FX Recap and Outlook

The US dollar retreated overnight, albeit not with a lot of conviction.   The major Asian equity indexes closed higher (except Japan’s Nikkei 225), following the lead from record closing highs for the S&P 500 and Nasdaq.  European equity indexes are firmer, but Wall Street futures are flat (as of 5:30 am ET). The higher than forecast US CPI (2.6% y/y vs forecast of 2.5%) helped knock 10-year US Treasury yields down to 1.638% today from 1.6620 yesterday.

Traders continue to ignore geopolitical tensions.  Iran said it planned to enrich uranium closer to weapons-grade.  China is annoyed at President Biden’s decision to send an “unofficial delegation” to Taiwan.  The Russian Assistant President summoned the American ambassador as the Russian military masses along the Ukraine border.

EURUSD inched higher, rising from 1.1949 to 1.1973 despite dovish comments from ECB officials.  Luis de Guindos said that the central bank would “react to any detrimental tightening of conditions” and that the ECB “stood ready to adjust all instruments as appropriate.”  His colleague Francois Villeroy said that a possible end of PEPP purchases by March 2022 would not imply a tightening of monetary policy.”  Weak Industrial Production Data acted as a drag on gains.   The intraday uptrend is intact while prices are above 1.1870.

GBPUSD is testing the bottom of its overnight 1.3751-1.3807 range.  The weakness is attributed to EURGBP demand and news that Bank of England Chief Economist Andy Haldane, a hawkish committee member, is quitting June 24. GBPUSD has support at 1.3670 and long-term uptrend support at 1.3570.

USDJPY traded with a negative bias in a 108.76-109.07 range, with prices weighed down by the retreat in 10-year US Treasury yields.  Bank of Japan Governor Haruhiko Kuroda noted that the domestic economy was in “a severe situation” with risks skewed to the downside.

AUDUSD rallied to 0.7694 from 0.7636 after Westpac Consumer Confidence data jumped to 6.2% from 2.6%.  The rally snapped the downtrend line from February, setting the stage for further gains.

NZDUSD rallied despite the RBNZ repeating that it would lower the OCR rate if required.  The central bank met expectations and left monetary policy unchanged.  NZDUSD climbed to 0.7119 from 0.7049.

USDCAD underperformed against the major G-10 currencies, even after WTI  oil prices jumped from $59.68/barrel yesterday to $6.1.28 today.  The severity of the third-wave coronavirus outbreak across many major regions of the country may be overshadowing the fundamentals that support a lower USDCAD.  Expectations for a strong economic rebound in H2  should attract USDCAD sellers in the 1.2630-50 area.

The US data calendar is light, leaving Fed speakers and Wall Street to provide FX direction.

USDCAD Technicals

The USDCAD technicals are bearish.  The long-term downtrend on a weekly chart is intact while prices are below the 1.2630-50 area.  The intraday technicals are bearish below 1.2570, looking for a break of 1.2520 to target 1.2450.  For today, USDCAD support is at 1.2520 and 1.2480.  Resistance is at 1.2580 and 1.2610.  Today’s Range 1.2510-1.2580

Chart: USDCAD weekly

Source:  Saxo Bank

FX open, high, low, and previous close

Source: Saxo Bank