February 16, 2024

  • IEA warns of slowing oil demand.
  • Hot PPI drives 10-year Treasury yield higher
  • US dollar opens defensively ahead of Canadian and American long weekend.

FX at a glance

Source: IFXA/RP

USDCAD Snapshot: open 1.3479-83, overnight range 1.3461-1.3508, close 1.3464

The USDCAD 1.3310-1.3590 range that has contained price action since the start of the year is likely to remain intact until the next Fed meeting which occurs March 20.  That’s because the Fed claims its decisions are data-dependent so traders will react to every piece of top tier data and lately the data has supported delaying interest rate  reductions.

WTI oil prices rallied with the retreat in the US dollar yesterday, but the rally stalled overnight.  WTI traded in a $77.22-$78.20 range but could not make any further headway after the International Energy Agency IEA warned that the oil market could be in surplus for all of 2024.

Canada Wholesale Sales rose just 0.3% (forecast 0.8%) in another sign the domestic economy is slowing.

USDCAD Technicals

The intraday USDCAD technicals turned bearish with the move below 1.3510 and are looking for a breech of 1.3440 to extend losses to 1.3410.  A move above 1.3510 retargets 1.3560.

Longer term, USDCAD is shuffling between the 100 and 200 day moving averages and between the 10 day Bollinger bands (1.3410 and 1.3550).

For today, USDCAD support is at 1.3460 and 1.3410. Resistance is at 1.3510 and 1.3560. Today’s range is 1.3460-1.3550.

Chart: USDCAD daily

Source: Investing.com

G-10 FX recap

Stock traders, firmly believing that U.S. interest rates will drop this year, are trading as though the initial rate cut has already been declared, which propelled the S&P 500 index to a new all-time high. Bond traders do not agree and have driven the US 10-year Treasury yield to 4.263% in NY today. Apparently, you can suck and blow at the same time.

Atlanta Fed President Raphael Bostic seems like he agrees with the bond traders. Yesterday, he said he thinks the Fed needs more time to be convinced that inflation is declining to the 2.0% objective.

This morning’s US economic dump clearly supports the Fed view that they need more time to assess data before lowering the Fed funds rate.  US  January Building Permits and Housing Starts reports were weaker than expected, although that was probably due to inclement weather.

The Producer Price Index rose more than expected (actual 0.3% m/m vs forecast 0.1%) and Core-PPI (ex-food and energy)soared 0.5% (forecast 0.1%).

Traders were unhappy.  The 10-year Treasury yield jumped to 4.326% from a pre-data level of 4.267% and yesterday’s low of 4.187%. SP500 futures traders took noticed and reversed its overnight move, turning a gain of 0.32% to a loss of 0.13%.

EURUSD consolidated yesterday’s gains in a 1.0752-1.0777 range then dropped to 1.0732 after the US data.  ECB President Christine Lagarde said there is a need for caution when talking about rate cuts, the first of which, many believe, will occur in June. Her colleague Isabel Schnabel concurred, saying, “The recent long period of high inflation suggests that, to avoid being forced into adopting a stop-and-go policy akin to that of the 1970s, we must be cautious not to adjust our policy stance prematurely.”

GBPUSD dropped to 1.2525, post US data after trading in a 1.2574-1.2606 range overnight. UK January Retail Sales (actual 3.4% m/m vs. -3.3% in December) rose more than expected but ING economists suggest it will have little impact on the Bank of England’s interest rate discussion as they are focused on wages and inflation.

USDJPY traded in a 149.83-150.37  band then popped to 150.65 on the hotter than expected US PPI data. BoJ Governor Kazuo Ueda reiterated the bank’s intentions to phase out stimulus once inflation can be sustained at its target.

AUDUSD traded sideways in a 0.6507-0.6530 band overnight then fell to 0.6497 when the US 10-year yield spiked higher.

USDMXN traded in a 17.0335-17.0690 range before jumping to17.1065 after the PPI data sent US Treasury yields soaring. The USDMXN technicals are bearish below 17.2150.

Canada and the US enjoy an extended weekend with markets in both countries closed on Monday.

FX high, low, open (as of 6:00 am ET)

Source: Investing.com

China Snapshot

PBoC fix: closed 7.1036, expected 7.1996, previous 7.1063

Shanghai Shenzhen CSI 300 closed- Feb. 8/24- 3364.93.

Chinese markets will be closed -Lunar New Year

Chart: USDCNH daily

Source: Investing.com