FOREX: USD Index Eases Off Recovery Highs, SEK Outperforms Ahead of Riksbank
Sep-22 16:53
- The USD index tracks around 0.25% lower on Monday, easing from the overnight peak that saw the index print a fresh recovery high at 97.82. Markets are trading with a subdued tone amid a lighter economic calendar to start the week, with central bank speakers providing little to boost volatility.
- The EUR outperforms, rising around 0.35% against the dollar to 1.1785. Large option expiries for EURUSD between the 1.17/18 mark might define the short-term range, following the post-Fed volatility last week that saw the pair reverse from 1.1919 cycle highs. Support to watch is 1.1667. the 50-day EMA.
- Last Thursday’s advance for EURJPY resulted in a breach of 173.97 resistance, the Jul 28 high and bull trigger. The cross has been consolidating above 174.00 for much of the session, bolstering the medium-term uptrend. Sights are on 174.86 next, a Fibonacci projection, before the 2024 highs which reside at 175.43, a key medium-term resistance.
- SEK outperforms the G10 basket Monday, seemingly trading as a high beta Euro with no obvious tailwinds from the equity/risk sentiment or rate differential channels. Focus of course remains on tomorrow's Riksbank decision, which is a very close call between a hold and a 25bp cut.
- For NZDUSD, the sharp reversal from 0.6000 to current spot levels renews the focus on a significant pivot point at 0.5800, which coincides with the 50% retracement of the year’s range. Below 0.5800, 0.5728 and 0.5636 would be the most obvious targets for a deeper selloff.
- Eurozone and US flash PMIs for September and the Riksbank decision highlight Tuesday’s calendar.
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FED: NatWest Now Sees Cuts In 2025, Starting In September
Aug-22 20:09
As with Deutsche earlier, NatWest has changed its Fed call after the Powell Jackson Hole speech to reflect a 25bp September cut. Previously, the call was for no cuts in 2025. The new baseline outlook includes further 25bp cuts in December and March, bringing rates closer to neutral ("however, the changing composition of the committee becomes far less clear once Powell term expires in May").
- "While the August jobs and CPI reports will be watched carefully, it is clear to us that Powell has already seen enough to decide renewed action to counter downside economic risks is likely warranted, and so we now look for a 25 basis point rate cut on September 17th.
- "We expect officials will very much downplay the likelihood of a 50bp rate cut leading up to the jobs data, but we have to admit if the report is "weak enough" (e.g., the unemployment rate increases by 0.3pct to 4.5% (where officials had it at year end) anything can happen and wouldn't rule anything out. However, given the latest pivot and with financial markets pricing (86% of a 25bp rate cut) a lot has to happen (unemployment rate 3-handle and core CPI +0.5%) for the FOMC to undeliver and hold off from a rate cut in September. "
USDCAD TECHS: Bull Cycle Hindered
Aug-22 20:00
- RES 4: 1.4111 High Apr 10
- RES 3: 1.4019 38.2% retracement of the Feb 3 - Jun 16 bear leg
- RES 2: 1.3968 High May 20
- RES 1: 1.3925 High Aug 22
- PRICE: 1.3840 @ 16:55 BST Aug 22
- SUP 1: 1.3794 20-day EMA
- SUP 2: 1.3769/22 50-day EMA / Low Aug 22
- SUP 3: 1.3576 Low Jul 23
- SUP 4: 1.3557/40 Low Jul 3 / Low Jun 16 and the bear trigger
Gains this week in USDCAD and the breach of resistance at 1.3879, the Aug 1 high, marked a positive development, however the slippage into the Friday close undermines this sentiment - for now. Moving average studies have crossed and are in a bull-mode position, reinforcing current conditions. An extension higher would signal scope for a climb towards 1.4019, a Fibonacci retracement. On the downside, support to watch lies at 1.3769, the 50-day EMA - a level not yet challenged by the correction lower.
CANADA: Q2 Expected To See GDP Contraction, BOC's Estimate Looks Too Negative
Aug-22 19:56
The June retail sales release helps wrap up the last major data before Canadian Q2 GDP is released on Friday August 29.
- Current Bloomberg analyst consensus shows Q2 is expected to show a 0.7% Q/Q annualized contraction, versus +2.2% in Q1. The private sector consensus is more optimistic than the Bank of Canada's -1.5% estimate in its July Monetary Policy Report (which MNI thinks is too low) but the component-by-component breakdown is similar if of differing magnitudes.
- Widely expected are: a softening in household consumption growth (+1.2% in Q1), with a pickup in government spending, continued weakness in fixed investment (-3.0% in Q1) though with residential outperforming business capital formation, and a reversal of Q2's positive contribution from net exports. In short, the data are expected to confirm that trade activity was brought forward to Q1 ahead of tariffs, with the effects reversing in Q2.
- Going forward, the BOC envisages growth resuming in Q3 (+1.0% in its "current tariff" scenario). In the meantime, a weak Q2 reading could provide Governing Council with more conviction to resume easing rates in September, with the July meeting decision noting "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate".
