October 22, 2021

  • S&P 500 at record highs as traders ignore jump in US 10-year Treasury yield to 1.70%
  • Canada August Retail Sales rise a tick higher than expected
  • US dollar bears in control; Greenback poised to end week with losses across the board.

Weekly FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2331-35, Overnight Range 1.2323-1.2373, Previous close 1.2370

USDCAD ebbed and flowed depending upon broad US dollar sentiment overnight while consolidating this week’s gain, but not revisiting yesterday’s 1.2290 low.

Canada August Retail Sales rose 2.1% m/m which Statistics Canada said is due to higher sales at food and beverage stores and gas stations.  Core-Retail sales rose 2.7%.

However, the data does not specify if the rise in retail sales was due to increased volumes or prices.  Increased volumes suggest economic growth while increased prices is inflation and generally a drag on growth.

Wednesday’s Canadian inflation data suggests the retail sales gain is because of higher prices.

The BoC monetary policy meeting is October 27 and if the Bank’s narrative disappoints those expecting a rate hike by April 2022, USDCAD will revisit 1.2500.

Traders did not react to news that the Federal government tapped the Magic ATM for another $7.4 billion to transition from spending money to alleviate the impact of the coronavirus to spending money for coronavirus support programs.  Traders ignored the news because massive and expanding fiscal deficits are the norm for the G-10.

USDCAD continues to be undermined by steady to firm oil prices, and positive risk sentiment from rising US equity markets.

Technical view:  The intraday USDCAD technicals are bearish below 1.2360, after the bounce from the 1.2290 low failed to clear resistance in the 1.2380-90 area. Further losses below support at 1.2320, 1.2305 and 1.2290, would target 1.2020.   A break above 1.2390 would extend gains to 1.2500.

For today, USDCAD support is at 1.2320 and 1.2290.  Resistance is 1.2360 and 1.2390. Today’s range 1.2310-1.2380

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Onwards and upwards.  US equity market bulls are in control, and so far, nothing can stop the relentless march higher.  President Biden tells Taiwan that the US will defend them.  China tells Biden to “get stuffed”, or words to that effect.  Vladimir Putin claims that NATO backing for Ukraine is a serious threat to Russia. The news didn’t even raise an eyebrow on Wall Street.  “Don’t worry be happy.”

US 10 year yields soared this week, rising from 1.57% on Tuesday to 1.705% overnight before ticking down to 1.69% in NY. That gain didn’t even phase FX traders who continued to sell US dollars.  The greenback is poised to end the week with losses against the G-10 major currencies, with the antipodean currencies leading the pack.

Markets will be interested to hear what Fed Chair Powell has to say about inflation and rising Treasury yields when he speaks at 11:00 am today.

Asia equity indexes closed in positive territory, underpinned by news that Evergrande avoided a default.  That positive sentiment extended in Europe, where all the major bourses are higher. S&P 500 and DJIA futures are a tad firmer, as are gold and oil prices.

EURUSD is sitting around the middle of this weeks 1.1620-1.1670 range.  The single currency slumped after Eurozone Composite and Services PMI were weaker than expected. Manufacturing PMI was close to unchanged.  Analysts blame PMI weakness on supply chain disruptions.

GBPUSD dropped from the overnight peak of 1.3814 to 1.3773 after weaker than expected Gfk consumer confidence (actual -17, previous -13) and retail sales data.  (September actual -0.2% m/m vs forecast 0.5%).  Analysts said the results reflect the impact of supply issues on the economy.

USDJPY drifted to the lower end of its overnight 113.75-114.20 range due to profit taking, even though US Treasury yields are elevated.   Japanese CPI data did not have any impact on trading.

AUDUSD continues to be underpinned by speculation that the RBA will need to raise interest rates sooner than expected while broad US dollar weakness accelerated gains overnight.

The US data calendar is devoid of top-tier data.

Chart of the Day: US 10-year Treasury yield-5 days.

Source:  CNBC

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.4032, Previous 6.3890

Shanghai Shenzhen CSI 300 rose 0.34%% to 4,958.73

Evergrande Group makes US bond payment ahead of grace-period deadline. Next week, same drama, different bond.

Regulatory concerns continue after PBoC said China will continue to separate operations of banking, insurance, and securities companies.

Chart: USDCNY 1 month

Source: Yahoo Finance