Photo: McDonalds

November 2, 2021

  • Risk appetite sours ahead of FOMC
  • Eurozone Manufacturing PMI is weaker than expected
  • US dollar opens mixed, consolidating yesterday’s gains

FX at a Glance:

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2303-07, Overnight Range 1.2372-1.2407, Previous close 1.2370

The USDCAD slide halted abruptly yesterday, coinciding with a drop in WTI oil prices, and in the absence of any domestic data.  A surge in the prices paid component of the ISM manufacturing index gave the greenback a boost against the major G-10 currencies and USDCAD rallied as well. Traders are biding their time until the FOMC meeting which could see a more-hawkish Fed Chair Powell.

Canada Building Permits rose 4.3% m/m in September compared to expectations of a 3.1% increase.

Technical view:  The intraday USDCAD technicals are bullish with the break above 1.2390 targeting 1.2430, which guards the mid-September downtrend line in the 1.2480-90 area. Today’s price action will just be noise as traders jockey for position ahead of the FOMC.

For today, USDCAD support is at 1.2380 and 1.2360.  Resistance is 1.2430 and 1.2450. Today’s range 1.2380-1.2440

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

Global equities are exhibiting all the traits of a market a “few French fries short of a Happy Meal.” Investors have assigned astronomical valuations to stocks of dubious value.   GameStop and AMC garnered a ton of attention after social media trading drove professional Wall Street short-sellers to book huge losses.

Tesla (TSLA: Nasdaq) is another.  It has a market cap of $1.2 trillion and sold just under 50,000 cars in 2020.  Toyota sold 9.5 million vehicles and its market cap is a mere $251.6 billion. Even more ludicrous is today’s Rivian Automotive IPO.

It is expected to value this electric vehicle company at $60.0 billion, and the company has only sold 51 vehicles.  Once upon a time, companies like Enron and Worldcom were investor darlings, which didn’t end well.

The looming FOMC meeting is occurring against the backdrop of the Atlanta Federal Reserve GDPNow forecast of 8.2% as of November 1 and Core inflation at 4.0%.  There is a small risk that Fed Chair Powell’s outlook leans toward the hawkish side.

Asian equity indexes closed in the red on caution ahead of the FOMC.  European bourses are mixed to higher, and Wall Street futures are flat to slightly positive.  Oil and gold prices are close to where they closed, while US 10-year Treasury yields are 1.555%.

EURUSD chopped about in a 1.1587-1.1612 range.  Eurozone October Manufacturing PMI fell to 58.3 from 58.5 which weighed on prices but modestly rebounding equity markets improved risk sentiment and gave the single currency a lift.

GBPUSD traded sideways in a 1.3628-1.3664 range.  News that the EU and UK have reopened talks to resolve the ongoing fishing dispute supported prices.  GBPUSD traders are focused on the FOMC meeting and then the Bank of England meeting on Thursday.

USDJPY is trading just above the low of the overnight 113.47-114.12 range due to softer US Treasury yields and reduced risk appetite.  The minutes of the October 28 monetary policy meeting did not offer any new insight.

The BoJ expects the economy to improve as the impact from the coronavirus subsides.

AUDUSD is at the bottom of its overnight 0.7459-0.7531 range after the RBA meeting was less hawkish than expected.  The central bank left interest rates unchanged and abandoned its yield curve control policy, as widely expected.  However, Governor Lowe said it was entirely plausible that the first rate increase would not occur until April 2024 which empowered AUDUSD bears.

NZDUSD traded lower in a 0.7127-0.7184 band

Chart of the Day:  AUDUSD hourly

Source:  Saxo Bank

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.4009, Previous 6.4192

Shanghai Shenzhen CSI 300 fell 1.04%% to 4,839.85

China stocks weighed down by coronavirus outbreaks with reports 18 schools locked down due to the virus.  Another report says guests at Shanghai Disney World were locked inside the park while authorities in Hazmat suits tested for the virus.

Chart: USDCNY 1 month

Source: Yahoo Finance