– Canadian dollar sinks deeper overnight
– US stock futures bounce from overnight low rather tepid
– USD adds to gains compared to Monday’s open
USDCAD Snapshot: open 1.3003-07, overnight range 1.2985-1.3035, previous close 1.3014, WTI open $101.45, Gold open $1,857.95
The Canadian dollar sank as investors clamored for US dollars, continuing the trend from Monday.
The USDCAD rally from May 5, accelerated on the break above 1.2910 yesterday and continued unabated until hitting major resistance at 1.3035 overnight. That resistance is the 38.2% Fibonacci retracement level of the entire pandemic range of 1.2020-1.4640. If the level contains gains, a break below 1.2700 will shift the focus to 1.2450.
However, Canadian dollar direction is highly correlated with the S&P 500 index. The Canadian dollar sinks when the S&P 500 sinks and the index is underwater. Stock traders have finally realized that the post-pandemic era of ultra-easy money is over.
Inflation is soaring in the US, Canada and elsewhere. Central bankers were slow to react, insisting that higher prices were “transitory” but as prices continued to rise, they were forced to admit they were wrong. Their mistake means that interest rates will rise higher and faster than originally expected.
Bond traders reacted and drove the 10-year US Treasury yield from 2.65% a month ago to 3.20% yesterday. Stock markets plunged and the US dollar rallied.
The Canadian dollar suffered as well, despite oil prices reaching a 14 year peak. West Texas Intermediate touched 129.85 in March and has since consolidated in a $95.00-$111.00 range since April 18. At the moment, Canadian dollar support from high oil prices is eroded by widespread “risk-aversion” demand for US dollars.
EURUSD in a 1.0537-1.0585 range overnight. EURUSD gains from forecasts of two ECB rate hikes by September are offset by recession risks thanks to the Russian invasion of Ukraine.
Bullish sentiment was also undermined after today’s German ZEW survey. It noted, “The expectations and assessments of the economic situation continue to point to a deterioration of the German economy during the next six months.”
The intraday EURUSD technicals are bearish below 1.0590.
GBPUSD bounced in a 1.2306-1.2375 band. Traders are conflicted between expectations for higher UK rates and recession risks.
USDJPY was on the defensive, falling from 130.58 to 129.80 due to the slide in US 10-year Treasury yields from 3.08% to 3.0% overnight.
AUDUSD and NZDUSD suffered from road US dollar demand and negative risk sentiment.
There are no economic reports of not today.