The Week Ahead – Economic Data, Monetary Policy, and COVID-19 in Focus

On the Macro

It’s quieter week ahead on the economic calendar, with 51 stats in focus in the week ending 6th August. In the week prior, 71 stats had also been in focus.

For the Dollar:

From the private sector, ISM Manufacturing and Non-Manufacturing PMIs for July will be in focus.

Expect the Non-Manufacturing PMI due out on Wednesday to have the greatest impact.

On the labor market front, ADP nonfarm employment change and weekly jobless claims figures on Wednesday and Thursday will also influence.

Nonfarm payrolls at the end of the week, however, will be the key stat of the week.

In the week ending 30th July, the Dollar Spot Index fell by 0.79% to 92.174.

For the EUR:

It’s a busy week on the economic data front.

Private sector PMIs for Italy and Spain together with finalized numbers for France, Germany, and the Eurozone will influence.

Expect Italy and the Eurozone’s PMIs to be key in the week.

German and Eurozone retail sales figures will also influence, with consumption key to a sustainable economic recovery.

For the week, the EUR rose by 0.84% to $1.1870.

For the Pound:

It’s a relatively quiet week ahead on the economic calendar.

Finalized private sector PMIs for July are due out on Monday and Wednesday.

Expect any revisions to the services PMI to have a greater impact in the week.

Construction PMIs also due out, should have a muted impact, however.

While the finalized numbers will influence, the Bank of England monetary policy decision on Thursday will be the main event.

Last week, the IMF talked up the outlook for the British economy. It now rests in the hands of the BoE.

The Pound ended the week up by 1.13% to $1.3904.

For the Loonie:

It’s a busier week ahead on the economic calendar.

Trade data on Thursday and employment change figures on Friday will be the key numbers.

While trade figures will influence, expect the employment change figures to have a greater impact.

The Loonie ended the week up 0.71% to C$1.2475 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Manufacturing sector data, building permits, retail sales, and trade data will be in focus.

Retail sales and trade data, due out on Wednesday and Thursday, will be the key stats of the week.

On the monetary policy front, however, the RBA monetary policy decision on Tuesday will be the main event.

The Aussie Dollar ended the week down by 0.30% to $0.7344.

For the Kiwi Dollar:

It’s a quiet week ahead. Mid-week, employment change figures will draw interest ahead of inflation expectation numbers on Friday.

With little else for the markets to consider in the week, expect both sets of numbers to provide direction. The markets are expecting a further pickup in inflationary pressures…

The Kiwi Dollar ended the week flat at $0.6974.

For the Japanese Yen:

Finalized private sector PMIs and Tokyo inflation figures will be in focus in the 1st half of the week.

Expect any revision to the PMIs to be of greater influence.

Late in the week, household spending figures will also draw interest.

The Japanese Yen rose by 0.75% to ¥109.720 against the U.S Dollar.

Out of China

It’s a busier day, with private sector PMIs to provide the markets with direction.

Following NBS numbers from the weekend, the market’s preferred Caixin manufacturing PMI will set the tone. Over the weekend, the NBS Manufacturing PMI fell from 50.9 to 50.4…

With service sector activity a greater component of the economy, Wednesday’s services PMI will also influence, however.

The Chinese Yuan ended the week up by 0.31% to CNY6.4614 against the U.S Dollar.

Geo-Politics

Russia and China continue to be the main areas of interest for the markets. News updates from the Middle East will also need continued monitoring…

The Weekly Wrap – A Dovish FED and Weak Stats Left the Greenback in the Red

The Stats

It was a busy week on the economic calendar, in the week ending 30th July.

A total of 71 stats were monitored, which was up from 33 stats in the week prior.

Of the 71 stats, 37 came in ahead forecasts, with 30 economic indicators coming up short of forecasts. There were 4 stats that were in line with forecasts in the week.

Looking at the numbers, 42 of the stats reflected an upward trend from previous figures. Of the remaining 29 stats, 27 reflected a deterioration from previous.

For the Greenback, disappointing economic data and a dovish FED left the Dollar in the red. The Dollar Spot Index fell by 0.79% to 92.174. In the previous week, the Dollar had risen by 0.24% to 92.906.

Out of the U.S

Consumer sentiment and durable goods orders drew attention early in the week.

In June, durable goods orders ex transportation rose by 0.3%, following a 0.5% increase in May.

More significantly was a pickup in consumer confidence in July. The CB Consumer Confidence Index rose from 128.9 to 129.1. Economists had forecast a decline to 126.0.

On Thursday, jobless claims and 2nd quarter GDP numbers were in focus. The stats were skewed to the negative, however.

In the 2nd quarter, the U.S economy grew by 6.5%. This fell well short of a forecasted growth of 8.5%.

Jobless claims also fell short of expectations, with initial jobless claims falling from 424k to 400k. Economists had forecast a decline to 370k.

At the end of the week, personal spending and inflation figures came in ahead of forecasts, however.

Personal spending rose by 1.0% in June, with the annual rate of inflation seeing a pickup from 3.4% to 3.5%.

While the stats were material, the FED monetary policy and press conference were the main events of the week.

In line with market expectations, the FED left policy unchanged. The FED Chair also looked to assure the markets that there would be no near-term moves, the guidance considered dovish.

Out of the UK

It was a particularly quiet week. There were no major stats for the markets to consider in the week.

The lack of stats left the Pound in the hands of IMF economic growth forecasts, which delivered Pound support.

In the week, the Pound rose by 1.13% to end the week at $1.3904. In the week prior, the Pound had fallen by 0.14% to $1.3748.

The FTSE100 ended the week up by 0.07%, following a 0.28% gain from the previous week.

Out of the Eurozone

Through much of the week, the German economy was in focus.

Business and consumer sentiment figures delivered mixed results. While business sentiment waned in July, consumer confidence remained unchanged, in spite of the reopening of economies.

Unemployment figures from Germany were upbeat. The unemployment fell from 5.9% to 5.7% in July.

Inflationary pressures continued to surge, however, with Germany’s annual rate of inflation accelerating in July to 3.8%.

At the end of the week, 1st estimate GDP numbers and prelim inflation figures were the key stats of the week.

Quarter-on-quarter, the French economy grew by 0.9% versus a forecasted 0.7% in the 2nd quarter.

Germany saw growth of 1.5%, falling short of a forecasted 1.9%. In the 1st quarter, the economy had contracted by 2.1%.

For the Eurozone, the economy grew by 2.0%, coming in ahead of a forecasted 1.5%. The economy had contracted by 0.3% in the previous quarter.

Inflation also ticked up, aligned with member state numbers. According to prelim figures, the Eurozone’s annual rate of inflation accelerated from 1.9% to 2.2% in July, rising above the ECB’s 2% target.

For the week, the EUR rose by 0.84% to $1.1870. In the week prior, the EUR had fallen by 0.30% to $1.1771.

The DAX30 fell by 0.67%, while the CAC40 and the EuroStoxx600 ended the week up by 0.67% and by 0.05% respectively.

For the Loonie

It was a relatively quiet week on the economic data front.

Inflation and GDP numbers were the key stats of the week.

In June, the annual rate of inflation softened from 2.8% to 2.7%, bucking the trend seen across key economies.

The Canadian economy also continued to struggle in May, with the economy contracting by 0.3%. The economy had contracted by 0.5% in April.

In the week ending 30th July, the Loonie rose by 0.71% to C$1.2475. In the week prior, the Loonie had risen by 0.39% to C$1.2564.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

While the Aussie Dollar fell by 0.30% to $0.7344, the Kiwi Dollar ended the week flat at $0.6974.

For the Aussie Dollar

Inflation was the main area of focus. The stats were mixed, however, pegging the Aussie Dollar back.

In the 2nd quarter, the annual rate of inflation surged from 1.1% to 3.8%. The trimmed mean rate of inflation picked up from 1.1% to 1.6%, however.

Wholesale inflation also saw a pickup but at a softer pace than anticipated.

Australia’s annual wholesale rate of inflation ticked up from 0.2% to 2.2%. Economists had forecast a rate of 3.5%.

For the Kiwi Dollar

It was a busier week, with trade and consumer and business confidence in focus.

Trade data disappointed, with the trade surplus narrowing from NZ$498m to NZ$261m in June. The narrowing stemmed from a more marked increase in imports, however, rather than a fall exports, which limited the damage.

Business and consumer confidence figures were also skewed to the negative. The ANZ Business Confidence Index fell from -0.60 to -3.80, with the ANZ Consumer Confidence Index falling from 114 to 113.1.

The week numbers were not enough to sink the Kiwi.

For the Japanese Yen

It was another relatively busy week.

Early in the week, private sector PMIs were in focus. Later in the week industrial production and retail sales also drew attention on Friday.

While prelim private sector PMIs softened slightly in July, industrial production and retail sales impressed.

Industrial production jumped by 6.2% in June, reversing a 6.5% slide from May. More significantly, retail sales increased by 3.1%, reversing a 0.4% decline from May.

The Japanese Yen rose by 0.75% to ¥109.72 against the U.S Dollar. In the week prior, the Yen had fallen by 0.44% to ¥110.550.

Out of China

It was a quiet week on the economic data front. There were no major stats from China for the markets to consider.

In the week ending 30th July, the Chinese Yuan rose by 0.31% to CNY6.4614. In the week prior, the Yuan had ended the week down by 0.03% to CNY6.4813.

The CSI300 and the Hang Seng ended the week down by 4.98% and by 5.46% respectively.

USD/CAD Daily Forecast – Test Of Resistance At 1.2480

U.S. Dollar Moves Higher After Hawkish Comments From Fed’s Bullard

USD/CAD is currently trying to settle above the resistance at 1.2480 while the U.S. dollar is gaining ground against a broad basket of currencies.

The U.S. Dollar Index has recently managed to get back above the resistance at 92 and is testing the next resistance level which is located at 92.15. In case this test is successful, the U.S. Dollar Index will move towards the resistance level which is located near the 20 EMA at 90.30 which will be bullish for USD/CAD.

Today, U.S. reported that Personal Income increased by 0.1% month-over-month in June while Personal Spending grew by 1%. Both reports exceeded analyst expectations.

Foreign exchange market traders also had a chance to take a look at the final reading of U.S. Consumer Confidence report for July which showed that Consumer Confidence declined from 85.5 in une to 81.2 in July compared to analyst consensus of 80.8.

U.S. dollar received additional support after Fed’s Bullard stated that Fed should begin to reduce its asset purchase program this fall and finish the program at the beginning of 2022. It should be noted that the recent Fed’s commentary remained dovish, and it remains to be seen whether Bullard’s views are shared by the majority of Fed members.

Technical Analysis

usd cad july 30 2021

USD to CAD managed to settle above the resistance at 1.2450 and is testing the next resistance level at 1.2480. In case this test is successful, USD to CAD will move towards the resistance at 1.2500.

A move above the resistance at 1.2500 will open the way to the test of the resistance at the 20 EMA at 1.2520. If USD to CAD gets above this level, it will head towards the next resistance at 1.2550.

On the support side, the nearest support for USD to CAD is located at 1.2450. If USD to CAD gets back below this level, it will move towards the support at the 50 EMA at 1.2435.

A successful test of the support at the 50 EMA will push USD to CAD towards the support at 1.2420. If USD to CAD manages to settle below this level, it will head towards the next support at 1.2385.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD: Loonie Dips After Early Gains But Set to End Week Strong

The Canadian dollar pared early gains against its U.S. counterpart on Friday as crude oil prices marched higher and the greenback recovered after U.S. consumer spending outpaced expectations in June.

Today, the dollar to loonie conversion rose to 1.2472, up from Thursday’s close of 1.2444. The Canadian dollar had lost about 3% in June – posting the biggest monthly drop since March 2020, the early days of the pandemic, and weakened about 0.5% so far this month. Although, the loonie is set to close this week with a gain

“The CAD has extended its rebound this week, even if gains came more as a reflection of a generally softer USD. Commodity prices strengthened broadly, driving the Bloomberg Commodity Index to a new cycle and six-year high Thursday while US-Canada 2Y spreads remain at a CAD-supportive –26bps. Our fair value models continue to reflect a significant USD overvaluation against the CAD (and a broadly overvalued USD against its major currency peers), although CAD-drivers have turned even more positive this week and our FV estimate has edged to a new cycle low below 1.17,” noted Shaun Osborne Chief FX Strategist at Scotiabank.

“It remains to be seen how far the USD will correct lower, however. We think the Fed has put the market on notice that taper timing is a live debate now among policymakers, which may provide the USD with general support in the coming weeks. Speculative FX traders have largely abandoned short USD positions in recent weeks and heightened equity market volatility—something of a “tradition” in August—will tend to work against the CAD and may lift USDCAD towards the upper reaches of our estimated range for next week (1.2508).”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, was trading 0.3% higher at 92.145 at the time of writing. Still, it hovers close to this month’s low of 91.782.

The dollar stalled its rally after the Fed in its Wednesday’s monetary policy decision highlighted that the interest rate hike is far away. The U.S. central bank also did not give any hint about reducing its purchases of government bonds.

“In the final week of the Olympics, we think the dollar will at least be able to stabilise after the recent correction. The prospect of the Fed’s tapering should be cemented by good payrolls, while global risk assets may still struggle to look past China’s regulatory clampdown. Elsewhere, the BoE and RBA should not deliver any new guidance,” noted analysts at ING.

However, the risk that the world’s dominant reserve currency, the USD, recovery over the coming year is high, largely driven by the Fed’s expectation of two rate hikes in 2023. A strengthening dollar and growing risk that the Federal Reserve would tighten its monetary policy earlier than expected would push the USD to CAD pair higher.

Canada is the world’s fourth-largest exporter of oil, which edged higher on tight supply and rising demand. High oil prices lead to higher U.S. dollar earnings for Canadian exporters, resulting in an increased value of the loonie. U.S. West Texas Intermediate (WTI) crude futures was trading around $73.51 a barrel.

A Busy Economic Calendar Puts the EUR, the Loonie, and the Greenback in Focus

Earlier in the Day:

It was a busy quiet start to the day on the economic calendar this morning. The Kiwi Dollar and the Japanese Yen were in action in the early part of the day. Later this morning, the Aussie Dollar will also be in focus.

For the Kiwi Dollar

Consumer confidence and housing sector data were in focus this morning.

In June, building permits rose by 3.8%, reversing a 2.40% slide in May. Economists had forecast a 1.10% decline.

Of greater significance, however, was a modest fall in consumer confidence.

In July, the ANZ Consumer Confidence Index fell from 114.0 to 113.1. Economists had forecast a decline to 113.0.

According to the July survey,

  • A good time to buy a major household item rose 2 points to +24, a fresh post-COVID high.
  • Sentiment towards the finances in a year’s time also improved. A net 23% expect to be better off this time next year, up 1 point.
  • This was in contrast to sentiment towards current financial situations, which fell 6 points to +8%.
  • Views towards the economic outlook were also mixed.
  • Perceptions regarding the next year’s economic outlook fell 5 points to -2%, while the 5-year outlook rose by 2 points to +12%.

The Kiwi Dollar moved from $0.70039 to $0.70162 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.01% to $0.7011.

For the Japanese Yen

Industrial production increased by 6.2% in June, according to prelim figures, reversing most of a 6.5% slide from May. Economists had forecast a 5.1% increase.

According to the Ministry of Economy, Trade and Industry,

  • Industries that mainly contributed to the increase were motor vehicles, production machinery, and electronic parts & devices.
  • Industries that mainly contributed to the decrease were transport equipment (excl. motor vehicles) and ceramics, stone, & clay products.

According to the Ministry of Economy, Trade and Industry, retail sales increased 3.1%, reversing a 0.4% decline from May. Economists had forecast a 3.6% slide.

The Japanese Yen moved from ¥109.416 to ¥109.402 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.05% to ¥109.420 against the U.S Dollar.

For the Aussie Dollar

Wholesale inflation and private sector credit figures will draw interest.

On the inflation front, the annual wholesale rate of inflation is forecast to accelerate from 0.2% to 3.5%.

Quarter-on-quarter, economists have forecast for the producer price index to rise by 2.1%, following a 0.4% increase in the 1st quarter.

At the time of writing, the Aussie Dollar was flat at $0.7396.

The Day Ahead

For the EUR

It’s a particularly busy day ahead on the economic data front, with the 2nd quarter GDP numbers, consumer spending, and inflation in focus.

French, German, and Eurozone 1st estimate GDP numbers for the 2nd quarter will be the key stats of the day, however.

At the time of writing, the EUR was up by 0.03% to $1.1891.

For the Pound

It’s yet another particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

The lack of stats leaves the IMF’s growth forecasts for the UK, delivered earlier in the week, to continue to resonate.

At the time of writing, the Pound was up by 0.05% to $1.3966.

Across the Pond

It’s a busy day ahead on the economic calendar.

Personal spending and inflation figures for June together with finalized consumer sentiment figures for July will be in focus.

Barring any marked revisions to prelim consumer sentiment figures, expect the personal spending and inflation figures to be key.

Following the FED’s policy decision on Wednesday, any FOMC member chatter will also need monitoring.

On Thursday, the U.S Dollar Spot Index ended the day down by 0.50% to 91.864.

For the Loonie

It’s also a busy day on the economic calendar. Wholesale inflation, RMPI, and GDP numbers will be in focus.

With a lack of stats through much of the week, expect Loonie sensitivity to today’s numbers.

Away from the economic calendar, crude oil prices and market risk sentiment will also influence.

At the time of writing, the Loonie was down by 0.01% to C$1.2449 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD Exchange Rate Prediction – The USD/CAD Drops on Broad Dollar Weakness

The USD/CAD moved lower, breaking down on Thursday amidst broader dollar weakness. Weaker than expected U.S. GDP weighed on short-term U.S. yields, which generated headwinds for the greenback. U.S. pending home sales were also softer than expected. Lastly, U.S. Jobless claims rose more than anticipated, which helped the Loonie gain traction.

Technical analysis

The USD/CAD tumbled on Thursday and is poised to test support near the 100-day moving average at 1.2365. Resistance on the currency pair is seen near the 10-day moving average at 1.2580. The exchange rate is oversold. The current reading on the fast stochastic is 4, well below the oversold trigger level of 20, which could foreshadow a correction. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line.

Jobless Claims Rise More than Expected

According to the Labor Department, jobless claims eased to 400,000 for the week ended July 24. That level is nearly double the pre-pandemic norm and was above the 380,000 estimates. However, it was a decrease from the previous week’s 424,000. Continuing claims edged higher to 3.27 million. According to the National Association of Realtors, pending home sales fell 1.9% in June. The pending home indicator is a measure of contracts signed which is a future gauge of existing home sales. High existing home sale prices continue to generate a choppy sales market. GDP accelerated 6.5% on an annualized basis, less than the 8.4% expected by economists.

USD/CAD Daily Forecast – Test Of Support At 1.2450

Canadian Dollar Rallies As Commodity Markets Move Higher

USD/CAD is currently trying to settle below the support level at 1.2450 while the U.S. dollar is under significant pressure against a broad basket of currencies.

The U.S. Dollar Index has recently managed to get below the 92 level and is currently testing the support at the 50 EMA at 91.90. If this test is successful, the U.S. Dollar Index will move towards the next support level at 91.80 which will be bearish for USD/CAD.

Today, foreign exchange market traders had a chance to take a look at the latest job market data from U.S. Initial Jobless Claims declined from 424,000 (revised from 419,000) to 400,000 compared to analyst consensus of 380,000. Continuing Jobless Claims increased from 3.26 million (revised from 3.24 million) to 3.27 million compared to analyst consensus of 3.2 million.

Second-quarter GDP Growth Rate report showed that GDP grew by 6.5% quarter-over-quarter compared to analyst consensus of 8.5%. Pending Home Sales decreased by 1.9% month-over-month in June while analysts expected that they would grow by 0.3%.

All economic reports from U.S. missed analyst estimates which put additional pressure on the American currency. Meanwhile, Canadian dollar moved higher as commodity markets rebounded.

Technical Analysis

usd cad july 29 2021

USD to CAD managed to settle below the support at 1.2480 and is testing the next support level at $1.2450. If USD to CAD settles below this level, it will move  to another test of the next support level which is located at the 50 EMA at 1.2435.

A move below the 50 EMA at 1.2435 will push USD to CAD towards the support at 1.2420. If USD to CAD declines below 1.2420, it will move towards the support level at 1.2385. A successful test of this level will open the way to the test of the support at 1.2350.

On the upside, the previous support level at 1.2480 will serve as the first resistance level for USD to CAD. In case USD to CAD manages to get back above this level, it will move towards the resistance at 1.2500. A move above this level will push USD to CAD towards the resistance at 1.2520.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD: U.S. Dollar Weakness Pushes Loonie to Two-Week High; Volatility To Last

The Canadian dollar rose against its U.S. counterpart on Thursday as the U.S. dollar tumbled to a month low after the Federal Reserve reiterated that the interest rate will remain zero for a long time.

Today, the dollar to loonie conversion fell to 1.2447, from 1.2527 on Wednesday. The Canadian dollar had lost about 3% in June – posting the biggest monthly drop since March 2020, the early days of the pandemic, and weakened about 0.6% so far this month.

“Canada’s headline inflation faced a slowdown (from 3.6% to 3.1% YoY) in June. That is probably a welcome development by the Bank of Canada as it supports the central bank’s view that inflation spikes will have a transitory nature. That said, it will hardly impact the BoC’s tapering plans, in our view. After all, the jobs market has proven to be very strong in the recovery and core inflation was broadly unchanged (and above target) from May to June,” noted Petr Krpata, Chief EMEA FX and IR Strategist at ING.

“We remain of the view that the BoC will end asset purchases by the end of 2021 and that the case for the first hike in 2022 is getting stronger. From an FX perspective, we think that the central bank’s hawkishness can help CAD outperform once market sentiment improves and investors find fresh interest in entering reflationary/carry trades.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, hit this month’s low of 91.910 and was trading 0.42% lower at 91.934 at the time of writing.

Following the Fed’s monetary policy announcement on Wednesday, the dollar lost momentum after it noted that a rate hike in the near future is unlikely. No hints were given by the U.S. central bank about reducing its purchases of government bonds.

“In terms of the dollar, the currency was slightly softer following the meeting. This suggests currency watchers may have been expecting somewhat stronger guidance from the Fed on the ‘tapering’ issue,” noted analysts at AIB.

“As the European session gets underway this morning, the modestly softer dollar tone is reflected in EUR/USD trading up at the midpoint of $1.18-1.19, while GBP/USD has regained some ground in $1.39 territory. Elsewhere, EUR/GBP remains pinned down near to the 85p mark.”

Nevertheless, the USD is at high risk of recovering over the next year. This is partially due to expectations of two rate hikes in 2023 by the Fed. A stronger dollar and growing odds of the Fed tightening monetary policy sooner than expected would push the USD/CAD pair higher.

Oil prices in Canada have edged higher amid hopes of an inventory report that is expected to be bullish. Higher oil prices result in increased U.S. dollar earnings for Canadian exporters, which translate to a stronger loonie. U.S. West Texas Intermediate (WTI) crude futures traded higher by 0.67 cents, or 0.94%, to $73.06 a barrel.

Dollar Comes Back to The Bearish Trend. Gold and Silver Rise

  • Jerome Powell buried the USD, helped precious metals and as almost always…stocks
  • U.S. dollar index breaks the lower line of the channel up formation and goes down
  • Silver comes back inside of the symmetric triangle pattern, that’s bullish
  • Gold climbs higher
  • The NZDJPY is creating an inverse head and shoulders pattern on an important support
  • The CHFJPY goes higher after a very handsome technical setup, which we discussed in our previous video
  • The EURUSD with a false bearish breakout of a neckline, that’s super bullish
  • The USDCAD goes down as expected. Shooting star on a weekly chart is no joke
  • Indices push higher, same thing, different day

Chinese Officials Calm Markets

Led by a 3% recovery in the Hang Seng, the large equity markets in the Asia Pacific region advanced after the MSCI benchmark recorded the lows for the year yesterday. Europe’s Dow Jones Stoxx 600 is posting modest gains that were sufficient to lift the benchmark to new record highs. US equity futures are firm. US and European 10-year yields are little changed. The US is firm around 1.26%. European yields are also 1-2 bp higher. The biggest reaction in the capital markets is the setback in the dollar, which is softer against nearly all currencies through the European morning.

Among the majors, the New Zealand and Canadian dollars and the Norwegian krone are the strongest. The yen and Swiss franc are the laggards. Among emerging market currencies, the South African rand and Hungarian forint are the strongest. The JP Morgan Emerging Market Currency Index extended yesterday’s gains and is poised for its best two days this month.

Meanwhile, the decline in real yields and a weaker dollar appear to be helping lift gold above its 200-day moving average near $1821. Falling oil inventories in the US are helping lift crude prices. The September WTI contract is up by more than 1% for the second day as prices push above $73 a barrel. After falling on Tuesday, the CRB rose yesterday, its sixth gain in the past seven sessions.

Asia Pacific

Chinese officials moved to calm markets. They did so by the regulators meeting with banks and trying to isolate the crackdown on private education while signaling that IPOs in the US are not banned. State funds may have been deployed to support equities. The PBOC provided additional liquidity. The CNY30 bln (~$4.6 bln) via seven-day repo was the largest such operation this month. Even if Chinese officials succeed in stabilizing the market, the damage to sentiment and confidence among foreign investors will take some time to heal.

First, outside of some general narrative, it is not clear Beijing’s end game. Second, what appears to be capriciousness and clumsiness did not just begin in recent days but is part of a sequence of events that goes back to the intended Ant IPO last year. Third, the opaqueness and activist state approach does not attract foreign investment. Fourth, these recent events show why integrating China into the world’s capital markets is a gradual process that is not simply moving in one direction. The main challenge is not technology, which means that a digital yuan may not be the game-changer that some have suggested.

After buying a record among Japanese bonds in the week through July 16 (JPY2.57 trillion), foreign investors pared their holdings last week by JPY223 bln. The most interesting development last week with Japanese portfolio flows was the continued divestment of foreign bonds. Japanese investors sold JPY1.09 trillion of foreign bonds. It was the fourth liquidation in the past five weeks. Indeed, the average weekly sales over this run have been JPY544 bln, the most in a five-week period since March as the fiscal year was drawing to a close.

The dollar is hovering near this week’s lows against the yen set on Tuesday near JPY109.60. There is little support below there until last week’s low closer to JPY109. There is an option for about $380 mln at JPY109.30 that expires today. On the upside, the greenback has not been able to poke above JPY110.00 today. The Australian dollar is bid, and it is straddling the $0.7400 are near midday in Europe. It has not closed above $0.7400 since July 15.

It appears to be absorbing offers that may be related to the A$1.1 bln in options expiring today between $0.7385 and $0.7400. The $0.7425 area holds the 20-day moving average, and the Aussie has not closed above it since mid-June. The dollar had broken out of the recent range against the Chinese yuan and reached its best level in three months on Tuesday (~CNY6.5125). It has since surrendered the gains and move back to the lower end of the previous trading range (~CNY6.45). It is on track for its biggest two-day drop against the yuan in six months. The dollar’s reference rate was set at CNY6.4942, nearly spot-on the median projection (CNY6.4944) in the Bloomberg survey.

Europe

Germany reported a larger than expected decline in unemployment and what appears to be an upside surprise on inflation. The unemployment queues fell by an impressive 91k in July after a 39k decline in June. It was the largest drop since late 2006. The median forecast called for a 29k decline. The unemployment rate fell to 5.7% from 5.9%. It was at 5% before the pandemic struck.

The German states have reported their CPI figures, and the national figures will be out shortly. The states reported a monthly rise of 0.8%-1.0%, which poses an upside risk to the median forecast expected a 0.6% rise in the national calculation, which would lift the year-over-year rate to 3.2% from 2.3%. The EU harmonized measure was expected to rise by 0.4% for a 2.9% year-over-year pace (up from 2.1% in June).

Spain, the other large EMU country reporting unemployment and inflation figures today. The Q2 unemployment rate eased even if not as much as expected, falling to 15.26% from nearly 16% in Q1. The EU harmonized inflation measure fell 1.2% on the month, which due to the base effect saw the year-over-year rate rose to 2.9% from 2.5%.

Tomorrow is a big day of releases for the eurozone. It reports the June unemployment rate (seen steady at 7.9%, though the risk is on the downside), CPI (seen at 2% but the risk is on the upside), and the first estimate for Q2 GDP ( a 1.5% quarterly gain, which would be the first expansion in three quarters and only the second quarterly expansion since Q3 19 (it was stagnant in Q4 19).

The euro is extending its rally for the fourth consecutive session. It has forged a base around the $1.1750-$1.1760 area and tested it at the start of the week. Today it is pushing against $1.1880, a three-week high. It closed above the 20-day moving average yesterday for the first time since June 7, and the five-day moving average is crossing above the 20-day moving average for the first time since then as well. It has not traded above $1.19 this month, and there is an 800 mln euro option struck there that expires today. Sterling is also advancing for the fourth consecutive session.

It settled last week slightly below $1.3750 and reached $1.3970 today, its highest level since June 23. Recall that sterling peaking on June 1 is near $1.4250. It is moving above the (50%) retracement level (~$1.3910) today, and the next retracement (61.8%) is just shy of $1.40.

America

There are two main takeaways from yesterday’s FOMC statement and press conference. First, the Fed is still on track to make a formal tapering announcement in a couple of months. The actual tapering could begin before year-end, depending on the economy. Powell seemed relatively calm about the prospects that the new Delta variant will cause a major economic disruption. The Jackson Hole-September FOMC meeting timeframe still seems reasonable, especially if the upcoming employment data is as strong as anticipated, and there are several forecasts for non-farm payrolls to rise by a million when announced at the end of next week. Second, the Fed continues to argue that elevated price pressure is temporary.

Powell has argued that a relatively small basket of goods in the CPI basket accounts for the prices. We have noted that only about a third of the components are rising faster than 2%. Powell pointed to cars (new, used, and rental), airfare, and hospitality as significant contributors. The Fed Chair continued to push back against linking house price increases to its MBS purchases and seemed to suggest early tapering off those purchases did not have wide support. The minutes will shed light on this debate.

More than a month after President Biden said a deal was struck, the Senate appears to be on the verge of approving a bipartisan physical infrastructure bill. It will be around $550 bln in new spending, and almost another $500 bln is anticipated in federal money for highways that are part of the regular cycle. It will be partly paid for by reallocated unspent covid relief funds and tapping the Strategic Oil Reserves and a few other more gimmicky measures like counting revenue for future growth and boosting the reporting for crypto trades to capture more tax revenues.

The US reports its preliminary estimate for Q2 GDP. The median forecast in Bloomberg’s survey calls for an 8.5% annualized pace after 6.4% in Q1. Personal consumption is expected to have risen by double digits for the second consecutive quarter. The GDP deflator is projected to rise to 5.4% from 4.3%. We suspect the US economic growth is peaking, and the slowing will be gradual, but by H2 22, the sub-3% pace will return. Separately, the US reported weekly jobless claims. They unexpectedly rose by 50k in the previous week, which was the second increase in three weeks and the first back above the 400k-mark since mid-June. Unperturbed, economists in the Bloomberg survey are looking for 385k claims last week.

The US dollar is breaking down against the Canadian dollar. It is convincingly falling through the 20-day moving average (~CAD1.2525) for the first time since mid-June. The greenback is trading near two and a half week lows against the Canadian dollar to test CAD1.2450. Recall it peaked near CAD1.28 on July 19. The next target is near CAD1.24, the halfway mark of the US dollar’s recovery from the five-year low set on June 1 near CAD1.20.

The Mexican peso shrugged off Moody’s downgrade of Pemex deeper below investment grade (Ba3 and retained a negative outlook). Of the main rating agencies, only S&P sees Pemex as an investment-grade risk. The dollar has approached MXN19.85 to take out last week’s low. The next area of support is seen near MXN19.80. It should be capped in front of MXN19.97.

This article was written by Marc Chandler, MarctoMarket.

Economic Data from the Eurozone and the U.S Put the EUR and the Dollar in the Spotlight

Earlier in the Day:

It was another relatively quiet start to the day on the economic calendar this morning. The Kiwi Dollar was in action in the early part of the day.

For the Kiwi Dollar

Business confidence was in focus this morning.

In July, the ANZ Business Confidence Index fell from -0.6 to -3.8%. Economists had forecast an increased to 1.2%.

According to the latest ANZ Report,

  • While business confidence was down, firms’ own activity rose by 5 points to +32%.
  • Investment intentions increased by 7 points to 25.5%, while employment intentions eased by 1 point.
  • Cost expectations rose by 5 points to a net 86.2%. A net 62.8% of respondents intend to raise their prices, up 6 points. General inflation expectations rose by 19 bps to 2.41%.
  • Profit expectations increased by 2 points to 5.8%, however.
  • Export intentions rose by a modest 1 point to 13.4%.

The Kiwi Dollar moved from $0.69584 to $0.69545 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.07% to $0.6954.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.16% to ¥109.730 against the U.S Dollar, while the Aussie Dollar was down by 0.15% to $0.7365.

The Day Ahead

For the EUR

It’s a relatively busy day ahead on the economic data front, with the German economy back in the spotlight.

Unemployment and inflation figures will be in focus later today.  Expect plenty of interest in the numbers, with market sensitivity to inflation lingering despite the ECB’s latest shift in its price objective.

At the time of writing, the EUR was up by 0.03% to $1.1848.

For the Pound

It’s yet another particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

At the time of writing, the Pound was up by 0.06% to $1.3911.

Across the Pond

It’s a busy day ahead on the economic calendar.

1st estimate GDP numbers for the 2nd quarter and weekly jobless claims figures will be in focus later today.

We can expect plenty of interest in today’s numbers. Expect any sharp increase in jobless claims to overshadow positive GDP numbers, however.

At the time of writing, the U.S Dollar Spot Index was down by 0.09% to 92.235.

For the Loonie

It’s a quiet day on the economic calendar, with no material stats from Canada to provide the Loonie with direction.

The lack of stats will leave the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was up by 0.05% to C$1.2522 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD Exchange Rate Prediction – The Loonie Rises Following CPI Report

The USD/CAD declined on Wednesday, despite broader dollar gains following a solid Canadian CPI report and the Fed’s decision to keep rates unchanged. While the Fed’s decision was widely expected, U.S. Treasury yields moved higher.  Canadian CPI decelerated following a torid pace in May but still remains elevated and above the Bank of Canada’s target rate.

Technical Analysis

The USD/CAD moved lower, failing near resistance at the 10-day moving average at 1.2598. Support is seen near the 100-day moving average seen near 1.2367. Short-term momentum has flip-flopped and turned positive as the fast stochastic generated a crossover buy signal. Medium-term momentum is negative as the MACD (moving average convergence divergence) histogram prints in negative territory with a declining trajectory which points to a lower exchange rate.

Canada’s Inflation Rises

Canada’s inflation rate slowed in June, rising 3.1% on a year-over-year basis. While inflation remains hot, the figure is down from 3.6% in May, which was the largest increase in a decade. Statistics Canada reported that prices slowed due to the spread of the pandemic. Gasoline prices, saw a year-over-year rise of 32% in June compared with 43.4% in May. Excluding gasoline prices, the annual rate of inflation would have been 2.2%. CPI rose 0.3% month over month compared to a 0.5% increase in May.

USD/CAD Daily Forecast – Resistance At 1.2590 Stays Strong

Canadian Dollar Moves Higher Against U.S. Dollar

USD/CAD failed to settle above the resistance at 1.2590 and pulled back while the U.S. dollar gained some ground against a broad basket of currencies.

The U.S. Dollar Index has recently made an attempt to get above 92.70 but lost momentum and pulled back towards 92.60. The nearest significant resistance level for the U.S. Dollar Index is located at 92.80. In case the U.S. Dollar Index gets to the test of this level, USD/CAD will get more support.

Canada has recently reported that Inflation Rate increased by 0.3% month-over-month in June compared to analyst consensus which called for growth of 0.4%. On a year-over-year basis, Inflation Rate grew by 3.1% compared to analyst consensus of 3.2%. Core Inflation Rate increased by 2.7% year-over-year.

Canada’s inflation was a bit lower than expected, but foreign exchange market traders will stay focused on the main event of the day. Soon, the Fed will announce its Interest Rate Decision and provide additional commentary. Any talk about potential adjustment of the asset purchase program may provide material support to the American currency.

Technical Analysis

usd cad july 28 2021

USD to CAD did not manage to settle above the resistance level at 1.2590 and is moving towards the nearest support level at 1.2560. In case USD to CAD manages to settle below this level, it will head towards the support which is located at the 20 EMA near 1.2540.

A move below the 20 EMA will open the way to the test of the support at 1.2500. If USD to CAD gets below the support at 1.2500, it will head towards the next support level at 1.2485.

On the upside, the nearest resistance level for USD to CAD is still located at 1.2590. A successful test of this level will push USD to CAD towards the next resistance at 1.2625.

In case USD to CAD manages to settle above 1.2625, it will head towards the next resistance at 1.2650. A move above the resistance at 1.2650 will open the way to the test of the resistance at 1.2685.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD: Loonie Gains on Rising Oil Prices; Fed Decision in Focus

Canada’s dollar gained against the U.S. counterpart on Wednesday as stocks gained and oil prices recovered, but currency traders are awaiting the Fed decision due later in the day, as an unexpected hawkish announcement would boost the greenback.

The dollar to loonie conversion fell to 1.2556 against the U.S. currency, down from Tuesday’s close of 1.26. The Canadian dollar had lost about 3% in June – posting the biggest monthly drop since March 2020, the early days of the pandemic, and weakened over 1.51% so far this month.

Canada is the world’s fourth-largest exporter of oil, which edged higher on hopes of a bullish inventory report. Increasing oil prices result in higher U.S. dollar earnings for Canadian exporters, which results in a stronger loonie. U.S. West Texas Intermediate (WTI) crude futures traded higher by 0.52 cents, or 0.74%, to $72.16 a barrel.

But the gains were capped by Canada’s June inflation data, which slowed to 3.1% from 3.6% in May.

“Following the BoC’s taper at the July meeting, Citi Research’s base case is for another tapering in October, with net-zero purchases by year-end and BoC to commence rate hikes in 2022. USDCAD is trading below a good resistance range at 1.2647-53 (March and April 2021 highs). If this continues, the next support level to watch will be a rising trend line currently standing at 1.2457,” noted analysts at Citi.

“Both fundamentals and technical therefore continue to support the “buy CAD on dips” sentiment not only versus USD but also against low yielders (EUR, JPY and CHF) and AUD (that continues to face extended lockdown risks).”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, was trading 0.23% higher at 92.642 – not far from this year’s high of 93.437.

The U.S. Federal Reserve is due to make an interest rate decision on Wednesday. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback. However, most economists believe this to be a non-event.

“We see a meaningful possibility that today’s Fed announcement will be a non-event, with the spread of the Delta Variant offering a reason for the FOMC to postpone more serious tapering communication until Jackson Hole. If anything, the balance of risks for the dollar appears tilted to the upside, also thanks to the China-related risk-off environment,” noted analysts at ING.

However, the risk that the world’s dominant reserve currency, the USD, is expected to rise further over the coming year, largely driven by the Fed’s expectation of two rate hikes in 2023. A strengthening dollar and growing risk that the Federal Reserve would tighten its monetary policy earlier than expected would push the USD to CAD pair higher.

Fed Day

The China-inspired losses saw the MSCI Asia Pacific Index fall to new lows for the year today, though Hong Kong’s Hang Seng posted a 1.3% gain. Europe’s Dow Jones Stoxx 600 is posting the first gain of the week, led by information technology, real estate, and consumer discretionary. Despite strong bank earnings, financials are matching the market, not outperforming it. US futures are oscillating around little changed levels.

The US 10-year benchmark yield is firm at 1.25%, while European yields are mostly slightly softer but sufficient to take German, French, Dutch, and Greek yields to new 3-4 month lows. The Antipodean currencies and yen are the heaviest against the US dollar, with the Canadian dollar the only major currency gaining on the greenback through the European morning. Emerging market currencies are mixed, leaving the JP Morgan EM FX index little changed.

The Chinese yuan gained for the first time in five sessions. API estimated a 4.7 mln barrel drop in US oil stocks and a large (6.2 mln barrel) drawdown in gasoline inventories, which, if confirmed, would be the largest since March. September WTI is around 1% higher today. Gold continues to move broadly sideways and is straddling the $1800-level today.

Iron ore and steel rebar futures fell in Shanghai, while copper is recovering from yesterday’s decline, which snapped a five-day advance. September lumber dropped 6.7% yesterday to bring this week’s decline to about 8.3% after jumping 18% last week on Canada’s wildfires. The CRB Index fell 0.6% yesterday to end is five-day, 6.8% advance.

Asia Pacific

Investors are continuing to try to make sense of Beijing’s aggressive moves that appear to be a broad offensive that can only result in a slowing if not reversing of past efforts to integrate into global capital markets. The ultimate goal is not clear. Beijing had appeared to be willing to use the capital inflows to ease restrictions on capital outflows. Some even speculated that this would gradually allow the yuan to be convertible.

Although we disagreed, many observers see that introducing the digital yuan as early as next year’s Olympics would challenge the US dollar’s role. The recent actions appear to deal a blow to such speculation. Lastly, there is some thought that the PBOC could ease policy again (following the recent cut in reserve requirements) to lend support to the stock market, if needed.

Australia’s Q2 CPI came in slightly above forecasts with a 0.8% rise after 0.6% in Q1. The year-over-year pace jumped to 3.8% from 1.1%. The underlying measures were as expected, with a 1.6% year rise (from 1.1%) for the trimmed mean and a 1.7% (from 1.3%) weighted median. Still, the data is unlikely to stand in the way of the RBA announcing increased bond purchases at next week’s meeting (August 3). The lockdown in Sydney and social restrictions elsewhere are threatening the economy.

Keep an eye on Japanese weekly portfolio flows that are released first thing tomorrow in Tokyo. In the previous week, ending July 9, foreigners appear to have bought a recorded amount of Japanese bonds (JPY2.57 trillion or ~$23.3 bln). To put the figure in perspective, the previous four-week average was around JPY546 bln. For their part, Japanese investors have sold foreign bonds for the past three weeks, and the average weekly sale of JPY804 bln is the most since early March. On the other hand, equity portfolio flows have been minor.

The dollar is consolidating in about a quarter of a yen below JPY110.00 so far today. The greenback has been recovering since dipping briefly below JPY109.60 near midday in NY yesterday. A move above JPY110.00 could see JPY110.20, but the subdued session will likely continue until the FOMC statement. The Australian dollar is stagnant. It remains within the range set on Monday (`$0.7330-$0.7390). There is an option for A$710 mln at $0.7390 that expires today and another for about A$515 mln at $0.7400 that expires tomorrow.

The dollar spiked to CNY6.5125 yesterday, its highest level in three months, and broke out of the CNY6.45-CNY6.50 month-old range. However, it was pushed back into the range today as the yuan rose for the first time in five sessions. The PBOC set the dollar’s reference rate at CNY6.4929, slightly lower than the median expectation picked up in Bloomberg’s forecast (CNY6.4935).

Europe

The UK and the EU are still at odds over the Northern Ireland Protocol. However, the EC moved to de-escalate the situation. Rather than push forward with its threat of imminent legal action as the end of the month should mark a new phase of enforcement, it appears to have granted a grace period of the summer to find an amicable solution.

Germany’s August GfK consumer confidence survey was unexpectedly weak. Rather than rising to 1.0 as economists projected, it remained at -0.3. The disastrous floods seem to be the main culprit. Tomorrow, Germany reports July CPI figures and employment data. The EU harmonized measure of CPI is expected to rise to 2.9% from 2.1% in June. Unemployment may have ticked down to 5.8% from 5.9%. It was at 5.0% steadily in H2 19.

The week’s highlight for the eurozone comes on Friday with the aggregate CPI (there seems to be upside risks to the 2.0% median forecast in Bloomberg’s survey) and the first look at Q2 GDP.

In the UK, Nationwide reported its house price index fell 0.5% in July. It is the first decline since March and the largest fall since last June. The year-over-year rate moderated to 10.5% from 13.4% in June. A tax break is winding down. On July 1, the stamp-duty threshold on new purchases was halved to GBP250k, adding GBP12.5k to the average home bought in London. Starting October 1, the threshold will return to GBP125k.

The euro is trading quietly in the upper end of yesterday’s range that saw it reach $1.1840, its highest level since mid-July. It has held above $1.18 so far today, and if sustained, will be the first session since July 12 that it has not traded with a $1.17-handle. There is a billion-euro option at $1.18 that expires today and another at $1.1820, and a third at $1.1850.

Tomorrow, there is a 1.36 bln euro option struck at $1.1850 that will also expire. It suggests that the area will likely be sticky. Sterling is firm but holding below $1.39 that it approached yesterday. An option for almost GBP400 mln is struck at $1.3925 that expires today. Tomorrow there is an option for almost GBP410 mln at $1.3900 that also will be cut. Initial support is seen near $1.3860 and then $1.3820.

America

Following Monday’s unexpected decline in June’s new home sales (-6.6%) and a downward revision to the May series (-7.8% rather than -5.9%), the US reported weaker than expected June durable goods orders, mitigated in part by the upward revisions to the May data. Separately, house price increases accelerated in May.

Today’s reports of the advance goods trade balance and retail and wholesale inventories will give economists the last opportunity to adjust the Q2 GDP forecasts ahead of tomorrow’s report. The median forecast in Bloomberg’s survey sees 8.5% annualized growth in Q2 after a 6.4% pace in Q1. The price deflator is expected to accelerate to 5.4% from 4.3%.

The outcome of the FOMC meeting is center stage today. No change in policy is expected, though some members seem to want to adjust the asset purchases immediately with special attention to the mortgage-backed securities. This seems unlikely. However, Powell is unlikely to push against expectations that an announcement could be made at the next FOMC meeting in September.

By pledging to give the market a clear advance warning, it would seem to need to say something relatively soon to keep its options open for an adjustment in the pace and possibly the composition of its purchase by the end of the year. Powell could deter dissents by striking a compromise by replacing the agency bonds purchases with more Treasuries, but this too seems unlikely. The FOMC statement is unlikely to deviate much from the last one, and the Fed is unlikely to see the rising Delta covid cases as substantially impacting its economic outlook.

Canada reports June CPI figures. The year-over-year rate is expected to ease (3.2% from 3.6%) for the first time this year. Canada has three core measures, two of which may have also softened (median and trim iterations). At the end of the week, Canada will report May’s monthly GDP. It is expected to have matched April’s 0.3% contraction, but the data seems dated.

Mexico’s June trade surplus was much smaller than expected ($762 mln vs. median Bloomberg survey forecast for $2 bln). Partly, it appears that domestic demand is improving, and this will likely be seen in the Q2 GDP report due at the end of the week. The median forecast anticipated a 1.8% expansion in the quarter after a 0.8% pace in Q1.

The US dollar is encountering selling pressure near CAD1.26 for the fifth consecutive session. Key support is seen near CAD1.2525, though there is an option for almost $390 mln at CAD1.2550 that expires today. Momentum indicators like the MACD and Slow Stochastic are trending lower, and the greenback’s recovery from the multi-year low set on June 1 near CAD1.20 looks over or nearly so.

The US dollar is trading near seven-day lows against the Mexican peso (~MXN19.9330). Chart support is seen in the MXN19.80-MXN19.82 band. Nearby resistance is pegged near MXN20.03.

This article was written by Marc Chandler, MarctoMarket.

Economic Data Puts the EUR in Focus ahead of the FED Policy Decision and Press Conference

Earlier in the Day:

It was a relatively quiet start to the day on the economic calendar this morning. The Aussie Dollar was in action in the early part of the day.

For the Aussie Dollar

Inflation was in focus this morning.

In the 2nd quarter, the annual rate of inflation accelerated from 1.1% to 3.8%. Economists had forecast a pickup to 4.0%.

Quarter-on-quarter, consumer prices rose by 0.8%, falling short of a forecasted 1.0% rise. In the 1st quarter, consumer prices had risen by 0.6%.

According to the ABS,

  • The most significant price rises in the June quarter were automotive fuel (+6.5%) and medical and hospital services (+2.4%).
  • Electricity prices rose by 3.3% as a result of the continued unwinding of the Western Australian Government’s A$600 electricity credit.
  • In the 2nd quarter, the trimmed mean annual rate of inflation picked up from 1.1% to 1.6%.

The Aussie Dollar moved from $0.73726 to $0.73660 upon release of the figures. At the time of writing, the Aussie Dollar up by 0.07% to $0.7367.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.08% to ¥109.870 against the U.S Dollar, while the Kiwi Dollar was up by 0.12% to $0.69640.

The Day Ahead

For the EUR

It’s a relatively quiet day ahead on the economic data front. Consumer sentiment figures from Germany will be in focus early in the European session.

With little else for the markets to consider, we can expect EUR sensitivity to the numbers. While economist have forecast for confidence to improve, the Delta variant could test consumer optimism near-term.

At the time of writing, the EUR was up by 0.03% to $1.1820.

For the Pound

It’s another particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

Further demand for the Pound is likely following the IMF’s outlook towards the UK economy.

At the time of writing, the Pound was up by 0.06% to $1.3888.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. Trade data for June will be in focus later in the day. We don’t expect the numbers to have a material impact on the Dollar and the broader markets, however.

The market focus will be on the FED interest rate decision and press conference scheduled for late in the U.S session.

The question will be whether the FED Chair can continue to convince the markets of unwavering policy support.

At the time of writing, the U.S Dollar Spot Index was up by 0.02% to 92.453.

For the Loonie

It’s relatively quiet day on the economic calendar, with inflation figures in focus.

After a quiet start to the week, we will expect the Loonie to be responsive to the numbers.

Ultimately, however, market risk sentiment and crude oil prices will remain the key drivers on the day.

At the time of writing, the Loonie was up by 0.13% to C$1.2586 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD Exchange Rate Prediction – The Dollar Bounces Ahead of Canadian CPI

The USD/CAD edged slightly higher on Tuesday, despite broader dollar weakness ahead of Wednesday’s Canadian CPI report. U.S. Treasury yields moved lower following a softer than expected U.S. Durable goods report. According to the U.S. Commerce Department, business spending rose 0.5% last month. Expectations were for core capital goods orders to increased by 0.7% month over month. The release came along with the headline Durable Goods Orders report, which advanced 0.8% in June after rebounding 3.2% in May. The decline in the greenback came despite record housing prices in May.

Technical Analysis

The USD/CAD moved higher, bouncing into resistance near the 10-day moving average at 1.2593. Support is seen near the 100-day moving average seen near 1.2367. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium-term momentum is negative as the MACD (moving average convergence divergence) histogram prints in negative territory with a declining trajectory which points to a lower exchange rate.

Home Prices Surge

The S&P CoreLogic Case-Shiller reports showed that home prices were 16.6% higher than in May 2020, the highest reading in the S&P CoreLogic Case-Shiller report’s 30-plus years. In April, it rose 14.8% year over year. S&P reported that the 10-city composite annual increase was 16.4% in May versus 14.5% in April. The 20-city composite gained 17% year over year, up from 15% the month before.

USD/CAD Daily Forecast – Canadian Dollar Retreats As Commodity Markets Move Lower

U.S. Dollar Moves Higher Against Canadian Dollar

USD/CAD is currently trying to settle above the resistance at 1.2590 while the U.S. dollar is losing ground against a broad basket of currencies.

The U.S. Dollar Index is trying to settle below the 20 EMA at 92.45. A successful test of this level will push the U.S. Dollar Index towards the support at 92.30 which will be bearish for USD/CAD.

It should be noted that commodity-related currencies are under some pressure today as copper pulls back after the recent rally while WTI oil is under pressure on virus worries. If commodity markets continue to move lower, Canadian dollar may find itself under more pressure.

Today, U.S. reported that Durable Goods Orders increased by 0.8% month-over-month in June compared to analyst consensus of 2.1%. Foreign exchange market traders also had a chance to take a look at Case-Shiller Home Price Index which increased by 17% year-over-year in May compared to analyst consensus which called for growth of 16.4%.

Tomorrow, traders will focus on Fed Interest Rate Decision, but they will also take a look at the latest inflation data from Canada. Analysts forecast that Canada’s Inflation Rate increased by 3.2% year-over-year in June while Core Inflation Rate grew by 2.6%.

Technical Analysis

 

usd cad july 27 2021

USD to CAD settled above 1.2560 and is testing the resistance level at 1.2590. This resistance level has already been tested several times in recent trading sessions and proved its strength.

In case USD to CAD manages to get above 1.2590, it will gain additional upside momentum and head towards the resistance at 1.2625. A successful test of this level will push USD to CAD towards the resistance at 1.2650. If USD to CAD settles above the resistance at 1.2650, it will move towards the next resistance at 1.2685.

On the support side, the nearest support level for USD to CAD is located at 1.2560. A move below this level will open the way to the test of the support which is located at the 20 EMA at 1.2535. If USD to CAD gets below the 20 EMA, it will move towards the support at 1.2500.

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD: Loonie Falls Against U.S. Dollar; Investors Eye Fed Decision

The Canadian dollar weakened against its U.S. counterpart on Tuesday as investors moved to the safety of the U.S. dollar; however, it will likely remain volatile ahead of the Fed monetary policy decision on Wednesday.

Today’s dollar to loonie conversion rose to 1.2594 against the U.S. currency, up from Monday’s close of 1.254. The Canadian dollar had lost about 3% in June – posting the biggest monthly drop since March 2020, the early days of the pandemic, and weakened over 1.5% so far this month.

“With the BoC on track to end asset purchases by year-end, we continue to see CAD as a potential outperformer in G10 in the coming months. The more balanced positioning could also favour the recovery in CAD,” noted analysts at ING.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, was trading 0.3% lower at 92.373 – not far from this year’s high of 93.437.

The U.S. Federal Reserve is due to make an interest rate decision on Wednesday. Traders remain cautious ahead of the policy decision as any unexpected hawkish surprise would lift the greenback.

The world’s dominant reserve currency, the USD, is expected to rise further over the coming year, largely driven by the Fed’s expectation of two rate hikes in 2023. A strengthening dollar and growing risk that the Federal Reserve would tighten its monetary policy earlier than expected would push the USD to CAD pair higher.

“Attention turns to the July 28th FOMC meeting where we expect taper decisions to be discussed with a formal set of normalization plans released in the Minutes. Such a signal may lead to further moderate tactical gains in DXY to horizontal resistance at 92.85 and perhaps even to pivotal resistance at 93.44 before reversing as fundamentals remain USD negative,” noted analysts at Citibank.

“With the Fed still buying assets unabated, risk sentiment should remain relatively well supported, leading to relative resilience of risk/ high beta FX (Commodity Bloc, Asia EMFX – CNH, SGD and GBP) against low yielders (EUR, JPY, CHF). Overall, levels above 92.50 in DXY still look tough to sustain medium-term while the 90.5 – 91.0 area looks tough to break on the downside leading into the meeting.”

Canada is the world’s fourth-largest exporter of oil, edged lower on surging COVID-19 cases cast a shadow on demand. U.S. West Texas Intermediate (WTI) crude futures traded lower by 0.3 cents, or 0.40%, to $71.61 a barrel.

“The USD remains generally overvalued against its major currency peers, our modelling work suggests, and USD/CAD’s overvaluation, which has been evident in our work for some time, remains intact. This suggests that the USD should edge back somewhat in the near-to-medium term to reconnect with what remains a clearly CAD-supportive backdrop,” noted Shaun Osborne, Chief FX Strategist at Scotiabank.

China Sends Ripples Across the Markets

Hong Kong shares are bearing the brunt. The Hang Seng has fallen by 10% in the three sessions, including today. The Shanghai Composite is off nearly 5.5% in the same period. A few of the other larger markets in the region, including Japan, South Korea, and Australia, posted small gains. Moody’s affirmation of a stable credit outlook helped lift Philippines’ stocks by 2.4%, the most in a couple of months and recouped most of Monday’s slide.

Europe’s Dow Jones Stoxx 600 is off around 0.5%, led by financials and energy. US futures are trading with a heavier bias. Benchmark bond yields are lower. The 10-year Treasury yield is hovering near 1.25%, off more than three basis points. European yields are 1-2 bp lower. The dollar is bid. The yen continues to be resilient. Emerging market currencies are retreating as an expression of the risk-off mood. The JP Morgan Emerging Market Currency Index is off 02%.

Industrial metals have been knocked back by reports suggesting China is considering new export tariffs on steel. Oil is sidelined, and the September WTI contract is little changed, around $72 a barrel. Gold is not drawing much of a bid. A stronger dollar may offset the lower yields as a consideration. If the yellow metal does not recover, it may close below $1800 for the first time in three weeks.

Asia Pacific

Beijing is fighting a two-front battle. Domestically, the new drive that began last year with the Ant IPO and crackdown on Alibaba has broadened. Stronger regulatory efforts, anti-trust, and IPOs in foreign markets, and now private education companies are killing the proverbial goose that lays the golden egg by underscoring international investors’ concerns about investing in China.

The capital inflows were to create conditions under which Beijing could ease capital outflow restrictions. The other front of the battle is in foreign policy. Yesterday’s high-level meetings with the US appeared to have failed to break new ground. While reports suggest that there is still scope for Biden and Xi to meet in October, with the March and July contentious meetings, the chances of an agreement seem remote.

Reports today suggest China is considering a 10-25% tariff on steel exports starting in Q3 to rein in the sector. This is separate from its regulatory initiatives. This seems more in the containing commodity prices and rationalizing the steel sector. It appeared to have an immediate effect of sending iron ore and steel rebar prices lower. However, nickel, which is needed in the new batteries, proved resilient and is at new multi-year highs. Separately, China reported industrial profits moderated to 20% year-over-year from more than 36% in May.

South Korea reported slightly softer than expected growth in Q2. GDP rose by 0.7% on the quarter after a 1.7% pace in Q1. This is broadly consistent with what had been perceived as a maturing of the Asia economic recovery. The government was quick to reaffirm its expectation for 4% growth this year, indicating that today’s report will have no impact on monetary policy. The central bank meets in late August. The market has fully discounted a 25 hike in the next three months. Separately, South Korea and North Korea agreed to re-establish formal relations, including the hotline.

A record number of covid cases in Tokyo has not offset the flow into the yen today. For the first time in four sessions, the dollar slipped below JPY110.00. Initial support is seen in the JPY109.80 area, but recall last week’s low was slightly above JPY109.00. It appears that the same considerations that weigh on US Treasury yields boost the demand for the yen. Covid cases in Sydney are still rising, and the risk-off is pushing the Australian dollar lower.

It has meet resistance in the last three sessions in front of $0.7400, and expiring options are set at $0.7380 today and $0.7390 tomorrow. On the downside, yesterday’s low near $0.7330 is holding, and a break could see a test last week’s lows (~$0.7290-$0.7300). The nearly 0.25% rise in the dollar against the Chinese yuan is the largest in almost a week and a half.

The greenback spiked to CNY6.5125 earlier, which is the highest level since April. The 200-day moving average is found by CNY6.5170. The greenback has not traded above this moving average since last July. The PBOC set the dollar’s reference rate at CNY6.4734, a bit softer than the median projection in Bloomberg’s survey for CNY6.4741.

Europe

Interest in the eurozone’s money supply figures has waned, perhaps as a result of the ECB’s asset purchases and negative interest loans. June M3 rose 8.3% year-over-year, largely in line with estimates. However, it is the underlying lending figures that draw more interest. Loans to households rose 4% after a 3.9% pace in May, while loans to companies rose 1.9%, matching the previous month’s rise. The economic highlights of the week still lie ahead. At the end of the week, the preliminary July CPI and Q2 GDP will be reported.

We see upside risk to the Bloomberg median forecast for 2.0% CPI. The median forecast calls for a 1.5% increase in the GDP quarter-over-quarter.

Hungary hiked its key rate by 30 bp in June to 0.90%. It is expected to follow up with another 20 bp hike today. The overnight deposit rate has stood at minus 5 bp since March 2019, when it was lifted from -15 bp, where it had been since August 2017. Inflation runs above 5%, the highest in nine years, and the core measure is at 16-year highs. As a result, Hungary may lift the deposit rate out of negative territory today to 10 bp.

The euro is trading inside yesterday’s range (~$1.1765-$1.1815). The 20-day moving average is slightly below $1.1820, and the euro has not traded above it since June 11 and has not closed above it since June 7. Although a base has been carved out in the $1.1750-$1.1760 area, the single currency has not been able to distance itself from it.

A break target the year’s low set at the end of March near $1.1700. Reports of falling covid cases in the UK may have helped spur sterling’s gains yesterday to a six-day high near $1.3835. Recall last week’s low was close to $1.3570. However, the recovery stalled, and sterling is consolidating today, straddling the $1.38 level. A break of the $1.3765 area could signal a move into a support band in the $1.3700-$1.3730 area.

America

The US 10-year TIP yield is at a record low today, near minus 1.14%, which seems incredible given that the US is expected to report Q2 GDP around 8.5% at an annualized clip and a deflator of almost 5.5%. The decline in the real yield yesterday was cited as a key force behind the greenback’s heavier today. Meanwhile, states that have had low vaccination rates are seeing strong spikes in the virus. The latest figures show about 60% of the 18+ cohort have been fully vaccinated, and 69% have been given one of two shots.

That means a little more than 49% of the population is fully vaccinated, which has been fairly stable. Ironically, even as the US secures more vaccines, a sizeable minority does not want it. Meanwhile, efforts to reach a bipartisan deal on infrastructure are still being stymied.

The US reports June durable goods orders today. The headline (~2.1%) will be lifted by aircraft, without which a modest gain (~0.8%) is expected. Shipments of non-defense and non-aircraft goods may have slowed to 0.8% from 1.1%. However, more attention may be on house price reports today. The FHFA reports its monthly house price index. It has been rising by more than 1% a month since last June without exception.

In April, it rose the fastest over this period, posted a 1.8% month-over-month increase. S&P CoreLogic Case Shiller index of house prices in the largest 20-cities and nationwide are expected to have accelerated in May. This comes as the FOMC’s two-day meeting begins, and several officials share our concerns about the optics, if not the impact of the central bank continuing to buy mortgage-backed securities. The Conference Board’s July consumer confidence measure is expected to soften from elevated levels. Lastly, note that Alphabet, Apple, Microsoft, among others, report earnings today.

Canada reports June CPI figures tomorrow, and the year-over-year rate may decline (3.2% from 3.6%) for the first time this year. Mexico reports June’s trade balance. A $2 bln surplus is expected, which would be the largest for Q2. Last year, the monthly trade surplus averaged $2.8 bln a month, up from $446 mln in 2019 and a $1.1 bln deficit in 2018. In the first five months of 2021, the average monthly surplus has fallen to $66.5 mln. Separately, we note that the dispute over measuring domestic content for autos and auto parts under the USMCA has not been resolved.

The US dollar is firm against the Canadian dollar but within the recent range (~CAD1.2525-CAD1.2610). There is an option for $550 mln at CAD1.26 that expires today. The 20-day moving average is near CAD1.2515, and the greenback has not traded below it since mid-June. On the upside, the 200-day moving average is around CAD1.2610. A move above it would target the CAD1.2680 area initially. The greenback is also confined to yesterday’s range against the Mexican peso (`MXN19.99-MXN20.1650). The risk-off mood warns of the risk of a stronger US dollar. Last week’s high was near MXN20.25.

This article was written by Marc Chandler, MarctoMarket.