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December 18, 2023

  • German Ifo data disappoints-again.
  • Key BoJ monetary policy meeting in progress.
  • US dollar gains on profit-taking and Fed comments.

FX at a glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3380-84, overnight range 1.3366-1.3389, close 1.3380

USDCAD traded sideways and uneventfully overnight with prices continuing to be undermined by the dovish outlook from the FOMC.  Fed Chair Jerome Powell thinks a recession will be avoided and that the job market is firm.

Bank of Canada Governor claimed it was too early “to consider cutting our policy rate,” in a speech on Friday. He also said, “The members did agree that the likelihood that monetary policy was sufficiently restrictive to achieve the inflation target had increase.”  Traders ignored his comments largely because the BoC actions are tied to the Fed’s decisions.

WTI oil inched higher in a $70.98/b -$72.65 range, partly because of tanker attacks in the Red Sea.  NATO member Turkey is showing its support for the defense pact by purchasing enough oil from Russia that it saved $2.0 billion in 2023. Turkey is now the biggest importer of Russian crude in the Western hemisphere.

Canada releases new housing price data.

USDCAD Technicals:

The intraday USDCAD technicals are bearish below 1.3390 and looking for a break below 1.3350 to extend losses to 1.3310.  A move above 1.3590 targets 1.3460, but only a break above 1.3570 will negate the downside pressure.

Longer term, the November downtrend is intact while  below 1.3570.

For today, USDCAD support at 1.3350 and 1.3310.  Resistance is at 1.3390 and 1.3430.  Today’s range 1.3350-1.3430

Chart: USDCAD  daily

Source: Daily FX

G-10 FX recap

Policymakers are pushing back against deep rate cuts in 2024, and traders are telling them to shove it.

Fed Chair Jerome Powell’s attempt to counter the markets’ “irrational exuberance” over rate cuts received additional support from NY Fed President John Williams and Atlanta Fed President Raphael Bostic. Both central bankers agreed it was too early to discuss cutting rates. Mr. Williams said, “We aren’t really talking about rate cuts.” Mr. Bostic said the Fed needs to see “several months” of data and evidence that inflation is continuing to fall. Cleveland Fed President Loretta Mester chimed in with a cautionary note when she told the FT, “The next phase is not when to reduce rates, even though that’s where the markets are at. It’s about how long do we need monetary policy to remain restrictive in order to be assured that inflation is on that sustainable and timely path back to 2%.”

Traders are flipping the bird to the Fed. The CME FedWatch tool predicts four rate cuts by July 31, taking Fed funds down to 4.50%. Bond traders were there before them. The US 10-year yield plunged from 5.0% in October to 3.898% in NY today. In that same span, the US dollar index (DXY) has dropped from 108.03 to 102.16 today.

Geopolitical tensions took a toll on risk sentiment to start the week. President Biden didn’t help. The befuddled octogenarian claimed that Russia would attack a NATO country if he prevailed in Ukraine. The comments arose after Putin’s comments about problems with Putin.

Yemen’s Houthis, another deranged religious sect sponsored by Iran, continue to fire drones targeting fuel tankers and cargo ships in the Red Sea.

Not to be outdone, North Korea fired off a ballistic missile that landed in the sea east of the Korean peninsula. Japanese officials said the missile could strike anywhere on the US mainland.

That was enough bad news to ensure Asian equity markets closed in the red, led by a 0.64% drop in Japan’s Nikkei 225 index. European bourses are in negative territory except for the UK FTSE 100 index, which has gained 0.35%. S&P 5600 futures are up 0.21%.

EURUSD is trading defensively in a 1.07892-1.0930 range partly because of a weaker-than-expected German Ifo data. Business Climate, Current Assessment, and Expectations missed estimates. The survey said: The ifo Business Climate Index fell to 86.4 points in December, down from 87.2 points in November. Companies were less satisfied with their current business. ECB policymaker Bostjan Vasle warned, “Market expectations for interest rate cuts are premature in my view, both with regard to the start of cuts and the totality of moves.”

GBPUSD is at the bottom of its 1.2650-1.2705 range due to a bit of caution ahead of Wednesday’s UK data dump. November CPI, PPI, and the Retail Price Index are on tap. GBPUSD technicals are bullish above 1.2550, a level guarded by support at 1.2610.

USDJPY is at the top of its 142.07-142.83 overnight range and supported ahead of Tuesday’s Bank of Japan monetary policy meeting statement. The meeting has already started and it is a coin flip as to whether the BoJ tweaks monetary policy or leaves rates unchanged but with a hawkish outlook.

AUDUSD drifted in a 0.6693-0.6736 range with prices tracking broad US dollar sentiment. The minutes from the RBA monetary policy meeting on December 5.

The US data calendar is empty.

FX high, low, open (as of 6:28 am ET)


China Snapshot

PBoC fix: today 7.0933, expected 7.1135, previous 7.0957.

Shanghai Shenzhen CSI 300 fell 0.36% to 3329.37.