Source: Pixabay

May 18, 2021

Global recovery optimism, with low interest rates, boosts risk sentiment

GBP soars as unemployment rate eases

US dollar opens with losses across the board

USDCAD open 1.2033-37, Overnight range 1.2015-1.2072, Previous close 1.2069

FX at a Glance

FX Recap and Outlook

Yesterday, FX traders were looking for US dollar direction. Not any more. The greenback headed lower across the board, with stop-loss selling exacerbating the drop.  A united front of Fed officials insisting that “now is not the time” to change monetary policy or discuss tapering QE appears to have convinced traders that central banks will not raise rates due to higher inflation.

Atlanta Fed President Raphael Bostic told CNBC, ““We are still 8 million jobs short of where we were pre-pandemic.  Until we make substantial progress to close that gap, I think we’ve got to have our policies in a very strongly accommodative situation or stance.” He added, “now is not the time where we have to consider moving.”  Richmond Fed President Thomas Barkin and Fed Vice Chair Richard Clarida made similar statements earlier.

Asia equity markets soared, led by a 2.1% rise in the Nikkei 225.  In Europe, the German Dax posted a fresh record high, while the UK’s FTSE 100  was bolstered by the lower than expected unemployment rate.  Wall Street futures point to a positive open. Gold and oil prices are higher, and 10-year Treasury yields are steady at 1.645%.

EURUSD broke above resistance at 1.2180 and climbed to 1.2223 on improved risk sentiment as traders begin to believe the Fed is right and inflation spikes are temporary. Prices have garnered additional support as the real-inflation differential is dollar negative.  ECB Executive Board member and French Central Bank President Francois Villeroy said there were no risks of durable inflation in the eurozone. Eurozone Q1 GDP was confirmed at -0.6% q/q.  . ECB President Christine Lagarde speaks later today.  There is a risk that she pushes back against the rise in EURUSD  due to its negative impact on the Eurozone recovery EURUSD targets 1.2350 on a break above 1.2250 with 1.2180 reverting to support.

GBPUSD climbed steadily in Asia, then accelerated higher following the UK employment report.  The three-month unemployment rate fell to 4.8% from 4.9%, a sign that the job market is improving. However, the data is skewed by the UK furlough scheme.  Nevertheless, GBPUSD rallied from 1.4136 to 1.4219, before easing to 1.4190 in early NY trading.  A move above 1.4250 targets 1.4350.

USDJPY dropped due to broad US dollar weakness and subdued US Treasury yields while ignoring weaker than expected Q1 GDP (actual 1.3% q/q, forecast 1.2%).

AUDUSD and NZDUSD rallied. The gains were driven by broad US dollar weakness and higher commodity prices.  AUDUSD got an added boost from the government urging states to ease COVID-19 restrictions.  The minutes of the RBA meeting from  May 4 did not offer any new insight.

USDCAD cracked below support at 1.2050 and dropped to 1.2015, setting the stage for further losses to 1.1930. Price action will get sticky around the 1.2000 level as it is a “round number.”  USDCAD continues to be sunk by rising commodity prices, and hopes for an economic boom in Canada, as the economy reopens. 

US Building Permits and Housing Starts were weaker than expected but had no impact on FX.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish below 1.2070 looking for a break of support at 1.2000 to extend losses to 1.1930.  A break above 1.2060 risks 1.2110.  For today, USDCAD support is at 1.2020 and 1.1990.  Resistance is at 1.2050 and 1.2090.  Today’s Range 1.2000-1.2050

Chart: USDCAD daily

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank