Photo: Wikimedia Commons

November 4, 2021

  • Bank of England surprises market with unchanged rates
  • Fed tapers dovishly
  • US dollar clawing back post-FOMC losses

FX at a Glance:

Source: IFXA Ltd/RP

USDCAD Snapshot   Open 1.2415-19, Overnight Range 1.2379-1.2432, Previous close 1.2390

USDCAD was caught in the FOMC vortex. Yesterday, prices see-sawed, rising from 1.2404 to 1.2455 at the 10:00 am option expiry window, and then bouncing between 1.2378 and 1.2430 during the FOMC statement and press conference. The reaction was because the Fed announced a dovish taper while Fed Chair Powell insisted inflation increases were mostly driven by supply chain issues which will normalize.

USDCAD found a bottom at 1.2378 overnight and drifted steadily higher, reaching 1.2432 after better than expected US weekly jobless claims data.

WTI oil prices dropped from $83.00/b yesterday to $79.77 overnight before rebounding to $81.84 in NY. Oil prices slumped due to the possibility that Iran strikes a nuclear deal and renews oil exports and concerns of another coronavirus fueled slump in demand after China is reportedly seeing a sharp rise in cases. Opec meets today and the cartel is expected to ignore President Biden’s call to boost production by 600-800,000 barrels/day.

USDCAD is underpinned by broad US dollar demand due to the risk that the Fed will raise interest rates sooner than expected.

Canada September Merchandise Trade surplus widened to $1.83 billion compared to the downwardly revised $1.51 billion result in August

Technical view:  The intraday USDCAD technicals are bullish above 1.2370 looking for a break above the 1.2430-50 resistance zone to extend gains to 1.2500. A break below 1.2370 will extend losses to 1.2320. The long term uptrend line from the 2011 low comes into play at 1.2060 while the downtrend from the COVID-19 peak is at 1.2790.  Coincidently, USDCAD is trading in the middle of that band.

For today, USDCAD support is at 1.2380 and 1.2340.  Resistance is 1.2450 and 1.2500. Today’s range 1.2380-1.2450.

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The US trade deficit narrowed to $80.93 billion from $96.3 billion in August while weekly jobless claims improved to 269,000 from 283,000, which supported Wall Street futures and the US dollar.

The FOMC has come and gone. Equity markets were pleased that the statement and Powell’s press conference maintained a dovish tone. Fed Chair Powell repeated that the unemployment rate did not accurately reflect the true picture. He dodged a question that asked if markets were wrong to price a rate hike in 2022.

Wall Street closed at new record highs, and Asia equity indexes rallied as well. Japan returned from a day off in a good mood, and the Nikkei 225 closed 0.93% higher. European bourses are in positive territory, with the UK FTSE leading the pack following the BoE statement. S&P 500 and DJIA futures are flat to modestly positive. Oil prices have gained 2.10% since yesterday’s close, and gold prices are 1.48% higher. US 10-year Treasury yields are 1.561%

GBPUSD traded in a 1.3618-1.3697 range overnight, then plummeted to 1.3534 in NY after the Bank of England surprised markets and left interest ratees unchanged. Many traders are angry at Governor Andrew Bailey and Chief Economist Huw Pin’s poor communication skills. Both men strongly implied that a rate hike would occur at todays meeting in recent remarks.

The BoE cut its 2022 growth forecast to 5% from 6.0% and is now predicting 5.0% inflation instead of 3.0% they forecast in September.

EURUSD dropped to 1.1544 from 1.1616 overnight and has traded sideways in NY. Prices are under pressure due to contrasting ECB and Fed monetary policy outlooks. The Fed is expected to hike rates in 2022 while the ECB leaves rates unchanged.

German Factory orders and Services PMI reports were ignored.

USDJPY is choppy inside a 113.77-114.27 range with US Treasury yields, and renewed Asia coronavirus concerns competing to provide direction.

AUDUSD and NZDUSD fell from post-FOMC peaks and extended losses in NY after weekly jobless claims data was a tad better than expected.

Chart of the Day:  GBPUSD 5 minute

Source: Saxo Bank

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3943, Previous 6.4079

Shanghai Shenzhen CSI 300 rose 0.99% to 4,868.74

Renewed COVID-19 outbreak forces Beijing to cancel incoming trains from 23 regions

Pentagon report says China is expanding nuclear arsenal and may have 1,000 nuclear warheads by 2030

Chinese media pushing back against social media rumours of pending invasion of Taiwan.

Chart: USDCNY 1 month

Source: Yahoo Finance