Today's FX Comment

June 14, 2024 

Good morning. Is it me or does this seem like a long week? US inflation numbers, the Fed meeting and of course the political scene in France, it has been a very event heavy past few days. TGIF.

Today has a risk off-ish feel to it with equities lower in Europe and looking like the will open softer in North America. The upcoming French election and that existential threat "to the very existence of the EU" is creeping back up on us again. Certainly, worries around the Eurozone are at least partly outweighing the pretty terrific inflation news we saw out of the US this week. Note to French President Macron, when your approval rating is 20%, maybe best not to call an election. Of course, most current world leaders aren't exactly basking in high approval ratings except for maybe Xi and Putin....Me, I like to look on the bright side, I do not think France will exit the EU and at least the inflation data out of the States this week was a huge step in the right direction. Keep in mind, despite the negative news out there and those hawkish dots, the S&P is still up 1.6% so far this week and almost 3% MTD.

The overnight session started out on a more positive note with Asian equity markets ending mixed. The BOJ certainly didn't seem in a rush to turn more hawkish which gave the Nikkei a lift while ongoing trade concerns between China and the US (Treasury Secretary Yellen noted yesterday that China's industry policy and overcapacity path may hurt efforts to build a healthy US-China economic relationship) likely weighed on the Hang Seng which ended the session lower. Of note, China’s currency continued to weaken, with the Yuan fixed at the weakest since Jan 19th. Sunday night brings the monthly Chinese data dump including IP, retail sales and fixed asset investment numbers. It also brings the 1 year MLF rate announcement with growing calls for a rate cut. With non-existent inflation in China why not.

European equity markets are all trading lower this morning with sentiment damaged by, you guessed it, the upcoming French election. Yields spreads between French bonds and pretty much everything else are widening and it will be hard for European markets to have any kind of sustained rally unless we see a huge uptick in support for Macron. North American markets look set to open lower and it may just be a case of drag from European sentiment combined with some pre-weekend profit taking. We have Michigan sentiment data to chew on later (falling gas prices help?) and we'll hear from the Fed's Mester and Goolsbee today as well.

FX thoughts:

JPY - The BOJ had a chance to lean more hawkish last night and support the Yen but they really didn't seize the opportunity, Rather, it was more of a confusing affair as instead of outlining cuts to bond purchases as expected, they put off discussing any amount of cuts until the next meeting on July 31st. A rate hike next month is also "data dependent". I think an opportunity missed. Resistance at 157.85 bent but has not really broken as the market treads cautiously on any move higher.

AUD - We have the RBA rate announcement next Monday evening and while no change in rates is expected, you would think they have to keep up the hawkish talk given recent employment numbers, still healthy wage growth and a still very healthy housing market. The threat of another rate hike has to stay on the table. .6580 is initial support followed by .6530, resistance between .6700-20.

GBP - Next to EU politics, the upcoming UK election looks like a walk in the park. EURGBP selling should help support Sterling overall. We are right on support at 1.2680 in Cable this morning, it still feels like 1.2600-1.2800 for now.

EUR - French Finance Minster Le Maire says if the right wins the election, France will have its own UK style "Liz Truss moment" debt crisis, while if the left wins, it will mean an EU exit. That does not exactly inspire confidence in the EU, Eurozone markets or the currency. I think the fears might be overdone but it is just easier for the market to steer clear of Europe for the next few weeks until the dust settles. US tech stocks look a lot better than anything Europe has to offer right now. We are right on a bit of support at 1.0680 this morning, we should see more bids ahead of 1.0600.

CAD - The Canadian Dollar is kind of lost in the shuffle right now. I think yesterday's note about Canadian households net worth hitting an all time high is of course a positive and I think the BOC did the right thing by cutting rates. It ultimately supports the economy, improves the odds of a soft landing and likely means less aggressive rate cuts down the road. The market has about a 70% chance of a rate cut priced in for July and it is hard to get more aggressive than that until we see CPI and GDP data later this month. All about following broader moves in the US Dollar for now, but in the current environment, CAD should fair a bit better on the crosses. Resistance 1.3785 followed by 1.3830.

Have a great weekend.

Good luck.