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October 27, 2021

BoC meeting may end with dovish result

France/UK fishing dispute heating up

US dollar opens firmer on mild risk-off sentiment

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2413-17, Overnight Range 1.2385-1.2427, Previous close 1.2390

USDCAD traded with a bullish bias inside a 1.2350-1.2395 range yesterday, traded sideways, then accelerated in Europe, touching 1.2427 before easing into the NY open.  The rally is due to a mix of caution ahead of today’s BoC monetary policy meeting and yesterday’s oil price slide from $84.78 to $83.14 overnight.

The BoC is universally expected to leave interest rates unchanged at 0.25% and they will also trim QE purchases to $1.0 billion/week.  The wild card is how they acknowledge the surge in inflation.  The BoC uses at least 5 different measures for inflation and is certainly going to use the lowest measure to justify inaction on rates.

Technical view:  The intraday USDCAD technicals are bullish above 1.2360 but the 1.2430-50 area has contained upside, suggesting this rally is merely a correction.  A topside break will extend gains to 1.2530, while a move below 1.2360 shifts the focus to 1.2290.  Longer term, a case can be made that the downtrend from March 2020 on a monthly chart, ended in July 2021 with the rally above 1.2300.

For today, USDCAD support is at 1.2380 and 1.2350.  Resistance is 1.2450 and 1.2490. Today’s range 1.2350-1.2450

Chart USDCAD monthly

Source: Saxo Bank

G-10 FX recap and outlook

US Durable Goods order fell 0.4% in September, which was better than the 1.3% drop expected but well below August’s 1.3% gain. FX traders ignored the news.

FX risk sentiment soured overnight after Asian equity indexes failed to follow Wall Street’s record close. Profit-takers emerged, and the US dollar recouped some of its earlier losses.  The losses were exacerbated as US 10-year yields dropped from 1.64% yesterday to 1.578% in NY.

EURUSD traded in a 1.1586-1.1625 range which is where it sits in early NY trading. Price action may be distorted by large option strikes expiring today. ECB President Christine Lagarde is expected to underscore the risk of sharply lower Euro area growth from supply chain disruptions while reiterating that inflation gains are “transitory” in tomorrows post-ECB meeting press conference.

EURUSD will likely remain in the 1.1580-1.1680 range until after the central bank meeting.

GBPUSD is having a choppy session with prices bouncing in a 1.3712-1.3793 range.  The UK budget forecasts 6.5% growth in 2021, well above the 4.0% predicted in March, but downgraded 2022 growth to 6.0% from 7.3%.

Nevertheless, renewed Brexit tensions may limit GBPUSD gains.  There are reports that France is ready to implement “go-slow customs inspections” for UK goods and raise electricity rates to Jersey unless the UK increases French fishing licenses.

The intraday GBPUSD technicals are bearish while prices are below 1.3780.

USDJPY traded lower in a 113.55-114.21 range, in response to the lower US 10-year Treasury yield.  The BoJ is widely expected to leave monetary policy unchanged but cut its growth forecast for 2022.

AUDUSD rallied in Asia but then gave back all the gains in Europe. Prices climbed to 0.7535 from 0.7494 after Australia’s inflation data was a tad hotter than expected, leading to speculation of an earlier than expected RBA rate hike. Those gains were erased in Europe when risk sentiment soured.

NZDUSD mirrored AUDUSD moves with New Zealand Trade and Business Confidence data not having any impact on FX.

Chart of the Day: AUDUSD

Source:  Google Finance

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3856, Previous 6.3890

Shanghai Shenzhen CSI 300 fell 1.31%% to 4,898.16

Chinese regulators summon eight property developers to learn about their foreign debt issues

Chart: USDCNY 1 month

Source: Yahoo Finance