- Most major markets closed Friday
- Risk sentiment improves after Omicron study
- US dollar on the defensive
USDCAD Snapshot: Open 1.2812-16, Overnight Range 1.2814-1.2852, Previous close 1.2852, WTI open $72.78, Gold open $1804.77
It is a Santa rally for the Canadian dollar. USDCAD rallied sharply since last Friday but failed to overcome significant resistance in the 1.2970 area. That changed on Wednesday.
Yesterday, better than expected US economic data including a more optimistic consumer confidence report improved the outlook for global growth, which accelerated on Omicron-variant news. Researchers in Denmark and the UK reported that the Omicron variant required less hospitalizations than the Delta variant.
The improved risk sentiment tone drove USDCAD below support at 1.2870, triggering stop-loss selling and prices dropped to 1.2835. Selling pressure continued overnight and USDCAD extended losses to 1.2814. The move may have been exaggerated by poor liquidity conditions, but sellers saw added pressure from the rise in West Texas Intermediate (WTI).
WTI rallied following yesterday’s weekly Energy Information Administration (EIA) crude stocks report. The EIA said crude inventories fell 4.715 million barrels in the week ending December 17.
Wall Street stocks rose and closed in positive territory. The major Asian closed with gains and European equity indexes are higher. Gold and oil prices are also posting gains. These moves are occurring in very thin markets as traders focus on the upcoming holidays.
There are a lot of US economic reports today, including Durable Goods Orders for November, weekly jobless claims, personal income and expenditures, new home sales, and the Michigan consumer sentiment index. This data could trigger volatile, but probably short-lived FX moves if there are large deviations from forecasts.
EURUSD rallied from 1.1312 to 1.1341 then stalled at the October 27 downtrend line. ECB President Christine Lagarde seemed to rebut yesterdays comments from colleague Isabel Schnabel. Ms Schnabel suggested that the pace and extent of the expected inflation decline is uncertain, implying it would remain well above the ECB’s target. Today, Ms Lagarde repeated that inflation will slow and settle below the 2.0% target.
GBPUSD added to yesterday’s gains and rallied from 1.3344 to 1.3433. Studies suggesting the Omicron virus is less severe than Delta improved the growth outlet and renewed expectations for additional Bank of England rate increases.
The next Knightsbridge FX update is December 29.
The major financial markets are closed Friday. They include Australia, New Zealand, the UK, France, Germany, Switzerland, Sweden, Denmark, and the European Union. Most of the US financial markets are closed as well including the NYSE. US bond markets close early today and do not reopen until Monday. Canadian markets are open, but close early and do not reopen until Wednesday December 29.
