Picture: Pixabay

October 1, 2021

S&P 500 futures reverse overnight losses and point to positive open on Wall Street

Canada July GDP falls 0.1%,  a tick better than forecast

Improving risk sentiment undermines US dollar

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2698-02, Overnight Range 1.2680-1.2737, Previous close 1.2684

The Canadian dollar has regained “petro-currency” status. USDCAD moves have closely tracked WTI price action, with an underlying bias guided by S&P 500 direction. Opec is expected to raise production by 400,000 barrels/day at next week’s meeting, but the US is pressuring them for a bigger increase to offset tight supplies. China (who else,) injected another layer of uncertainty into prices after the government told domestic energy companies to secure winter supplies “at any cost.” The prospect of higher oil prices acts as a drag on USDCAD gains.

Canada July GDP fell 0.1% following a 0.6% rise in June m/m. Gains in accommodation and food services were negated by supply-chain bottlenecks impacting manufacturing and wholesale trade.  Statistics Canada is predicting August GDP to rebound to 0.7% m/m.

Technical view:  The USDCAD technicals are bullish while prices are above 1.2610, looking for a break above 1.2660 to extend gains to 1.2860.  A topside break targets 1.3000 while a move below 1.2610 opens up a test of 1.2500.

For today, support is at 1.2660 and 1.2610.  Resistance is 1.2750 and 1.2810. Today’s range 1.2650-1.2740

Chart USDCAD and WTI hourly

Source: Saxo Bank

G-10 FX recap and outlook

US consumers are spending.  Personal Spending rose 0.8% in August compared to the downwardly revised -0.1% in July, suggesting the impact from the delta-variant coronavirus is waning.

Global markets are not happy campers. The slide in US stocks was contagious and took Asia and European equity indexes lower, and all traders were spooked that increased energy prices and the jump in interest rates would derail global growth.  US political wrangling over Biden’s $3.5 billion spending plans and debt ceiling issues were other distractions that did not inspire confidence. Neither did yesterday’s weekly jobless claims that showed claims rising for the third week in a row.

There is a ray of sunshine in all the gloom. Month-end and quarter-end rebalancing flows may have distorted equity markets while boosting the US dollar, and those flows have dissipated. Fed Chair Powell admitted that “transitory” inflation may hang around longer than he expected due to supply chain issues but “we will get through that,” as he continues to push back against higher rates

US 10-year Treasury yields have retreated from Wednesday’s peak of 1.562% to 1.489% today.

S&P500 futures recouped all its overnight losses and are pointing to a positive open on Wall Street.

EURUSD traded in a 1.1564-1.1590 range overnight and pushed above 1.1600 in NY trading as risk sentiment improved modestly.  The single currency continues to suffer from widening Eurozone and the US interest rate differentials. Slightly weaker than expected Manufacturing PMI data (actual 58.6 vs forecast 58.7) wasn’t a factor.

Eurozone inflation jumped to 3.4% y/y in September compared to 3.0% y/y in august.  That gain was blamed on soaring energy costs.   EURUSD technicals are bearish below 1.1660 with a break below 1.1540 targeting 1.1450.

GBPUSD soared from the overnight low of 1.3435 to 1.3546 in NY trading.   Profit-taking and a rebound in stock markets boosted prices as well as fading concerns about the domestic gas shortages.  UK September Manufacturing PMI was a 57.1 with the result due to supply chain issues. GBPUSD technicals are bullish and looking for a break above 1.3550 to extend gains to 1.3600.

USDJPY retreated with the drop in 10-year Treasury yields, falling from 111.48 to 110.97. The BOJ Tankan Survey was largely better than expected.  The Large Manufacturers Index rose to its highest since 2018.

AUDUSD and NZDUSD extended their overnight gains in NY due to renewed US dollar weakness and US stock market gains.

Chart of the Day- CBOE VIX

Chart: Yahoo Finance

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot -Closed Golden Week holidays

Today’s Bank of China Fix, 6.4854,  

Shanghai Shenzhen CSI 300 closed

Chart: USDCNH (offshore)

Source: Saxo Bank