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May 5, 2021

European equities and S&P Futures rebound

Yellen back-pedals on rate hike comments

US dollar opens mixed: commodity currency bloc rallies

USDCAD open 1.2284-88  Overnight Range 1.2269-1.2310, close 1.2309

FX at a Glance

FX Recap and Outlook

Treasury Secretary Janet Yellen dropped an “H-bomb”, yesterday. She opined about a US rate Hike, telling the “The Atlantic: “It may be that interest rates will have to rise somewhat to make sure our economy does not overheat, even though the additional spending is relatively small relative to the size of the economy.”

Her comments  were not quite as devastating as a real H-bomb, but they still left a mark.

The US dollar rallied, bonds sank, and stocks plunged.  Then she back-pedalled quick enough to put a Peloton- enthusiast to shame.  Ms Yellen told the Wall Street Journal that any near-term inflation increases would be temporary because they are due to supply chain bottlenecks.

The US dollar gave back some gains, bonds rallied, and stocks recovered.  The Dow Jones Industrial Average closed flat, but the S&P 500 and NASDAQ still finished with losses.

All is forgiven-for now.  European bourses are higher led by a 1.54% rise in the German DAX.  US 10-year Treasury yields are sitting at 1.62%. 

Global risk sentiment is positive, and traders are looking to the US to lead the post-pandemic recovery.  US economic growth is accelerating, turbo-charged by the vaccine roll-out,  consumers with a pocketful of fiscal -stimulus cash, and extremely low interest rates.

EURUSD does not share the positive risk enthusiasm.  The single currency dropped to 1.1987 from 1.2026 and is just above that level in NY.   Europe is only discussing easing COVID-19 restrictions sometime in June.  EURUSD suffered from modestly weaker than expected final Services and composite PMI readings in Germany, France, and Italy, even though the Eurozone data was a tad better than forecast.  The short-term EURUSD outlook is for a test of support at 1.1950 while prices are below 1.2030.

GBPUSD rallied from 1.3878 to 1.3925 and is trading at the peak in early NY, with prices boosted by  EURGBP selling.   Traders are keeping an eye on the Scottish elections. If the SNP party wins a majority, it could spark another Scottish Referendum and weigh on GBPUSD.  GBPUSD needs to break above resistance in the 1.3960 area or risk a return to 1.3800.

USDJPY traded in a 109.21-109.47 band with price action directed by US Treasury yields.  Prices have a modestly bullish bias above 109.00, looking for a break above 109.80 to extend gains to 110.80.  Japanese markets were closed for a holiday.

AUDUSD is trading at the top of its 0.7706-0.7740 range, supported by higher commodity prices, robust March building permits data and positive global risk sentiment.

NZDUSD was the best performing G-10 currency overnight, rising to 0.7191 from 0.7145, following a better than expected employment report. Jobs increased 0.6% q/q in Q1 compared to the forecast of a 0.2% rise. The RBNZ stability report did not cause any ripples.

Oil prices jumped again.   WTI rallied from $64.95 yesterday morning to $66 63 in NY, fueled by a sharp 7.7 million barrel decline in US crude inventories for the week ending April 30.

USDCAD fell to 1.2269 in early NY trading after closing at 1.2309. The 5.8% jump in crude since Monday weighed on the currency.  USDCAD is also pressured by hopes for a robust domestic economic rebound when COVID-19 restrictions disappear. In addition, some investors are buying the  Canadian dollar as a proxy to the US dollar.

The US post-pandemic economic boom story got  additional support after todays ADP report showed US employment rose 742,000 in April, higher than the upwardly revised March result of 565,000.  ISM Serves PMI is forecast to rise to 64.3 from 63.7.

Bank of Canada Governor Tiff Macklem speaks at 11:00 am ET.

USDCAD Technical Outlook

The  USDCAD technicals are bearish below 1.2340, looking for a break of support at 1.2250 to extend losses to 1.2000.   For today, USDCAD support is 1.2250  and 1.2210.  Resistance is at 1.2310 and 1.2330.  Today’s Range 1.2240-1.2320

Chart: USDCAD 4 hour

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank