Picture: 20th Century Television

November 8, 2021

  • Focus on Wednesday’s US inflation report-risk to the upside
  • NFP data suggests strong US Q4 growth
  • US dollar consolidates last week’s post-central bank meeting gains

One-week FX at a Glance:

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2446-49, Overnight Range 1.2442-1.2464, Previous close 1.2456

USDCAD climbed steadily last week, rising from 1.2350 on November 1 to 1.2477 on Friday. Canada reported a gain of 31,200 new jobs which was sharply lower than the September result, but above the consensus forecast.  The USDCAD retreat following the news was mostly due to the sharp drop in US 10-year yields which plunged from 1.532% to 1.451% despite the US NFP report rising higher than expected.

BoC Governor used Fed chair Powell’s definition of “transitory” when he said in an interview this weekend “I think transitory to economists, means sort of not permanent.”  He is implying that inflation at current levels will move lower, but his definition doesn’t offer a direction.

USDCAD is at its overnight session low and tracking broad US dollar moves.

Technical view:  The intraday USDCAD technicals are bullish while trading above 1.2420, looking for a break of resistance in the 1.2480-1.2530 area to extend gains to 1.2730.  A move below 1.2430 shifts the focus to support at 1.2350.

Longer term, the retreat from the pandemic peak of 1.4667 is intact while prices are below 1.2740. The latest rally is a correction as long as prices remain below key resistance which includes the 200-day moving average at 1.2476, and the 100 day moving average at 1.2532.  Further resistance is at 1.2516, which represents the 38.2% Fibonacci retracement of the September 1.2893-October 1.2290 range.

For today, USDCAD support is at 1.2430 and 1.2400.  Resistance is 1.2500 and 1.2520. Today’s range 1.2430-1.2505.

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

Inflation is the FX theme today and probably until Wednesday’s US CPI data is available.  Friday, Kansas City Fed President Esther George said, “the risk of a prolonged period of elevated inflation has increased.”  ECB Chief Economist Phillip Lane “This current period of inflation is very unusual, temporary, and not a sign of a chronic situation.  US CPI is forecast to rise 5.3% with many economists suggesting the risk is to the upside.

Asia equity markets started the week on the defensive and they closed with small losses. European equity traders were cautious, and the major bourses are flat to modestly lower. DJIA and S&P 500 futures are posting tiny gains, while gold and oil prices gained 1.37% and 1.21% respectively.

EURUSD is consolidating Friday’s post-NFP gains and is trading at the top of its 1.1552-1.1582 range.  Dovish comments by ECB ‘s Lane should help temper enthusiasm for gains above 1.1600.

GBPUSD is continuing to recoup losses following the Bank of England’s failure to raise interest rates even after signalling a hike was imminent.  GBPUSD traded in a 1.3452-1.3499 range then accelerated to 1.3549 in early NY, in part due to anticipation of a December rate hike. Traders appear to have dismissed reports that if the UK triggered Article 16, the EU would scrap the trade agreement.

USDJPY traded in a 113.33-113.66 band with prices tracking US 10-year Treasury yield moves. The USDJPY technicals are bullish with support at 113.20 and 112.70.

NZDUSD outperformed it AUDUSD cousin as both currencies tracked broad US dollar sentiment. Kiwi got an added lift as coronavirus restrictions will be lifted this week.

Chart of the Day:  US 10 year Treasury yield

Source: Investing.com

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3959, Previous 6.3980

Shanghai Shenzhen CSI 300 rose 0.12% to 4.848.18

China Trade Surplus surges to $84.54 billion (forecast $39.89 b, y/y Sept. $66.76 b/y/y)

Property developer loan default risks continue to linger.

China’s 6th plenum (Nov 8-11) could finish with President Xi Jinping setting the stage to rule for Life

Chart: USDCNY 1 month

Source: Yahoo Finance