October 25, 2021

Global demand and tight supply underpinning crude prices.

Fed Chair Powell hints at concern about high inflation

US dollar opens lower compared to Friday, soft German Ifo data weighs on EURUSD

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2365-69, Overnight Range 1.2341-1.2378, Previous close 1.2369

USDCAD traded sideways overnight but it is still a tad firmer from where it opened in NY on Friday. Another jump in WTI oil prices (up 2.5% from Friday’s low) helped counter broad US dollar demand after Fed Chair Powell seemed to confirm a November start to tapering but seemed to be a tad uncertain about his inflation outlook.

Traders are modestly cautious ahead of Wednesday’s Bank of Canada monetary policy meeting.  The BoC is widely expected to reduce bond purchases further while Governor Macklem reiterates that inflation is transitory.

USDCAD gains are limited by rising oil prices, and expectations for 4 rate hikes in 2022, with the first hike priced in for April, easily outpacing Fed rate hikes.

Technical view:  The intraday USDCAD technicals are bearish with prices in a downtrend channel bound by 1.2380 and 1.2250, which guards the September downtrend line at 1.2500.  A decisive break above 1.2390 would extend gains to 1.2450, while a drop below 1.2320 targets 1.2280

For today, USDCAD support is at 1.2320 and 1.2280.  Resistance is 1.2360 and 1.2390. Today’s range 1.2310-1.2380

Chart USDCAD 4 hour

Source: Saxo Bank

G-10 FX recap and outlook

It is going to be a busy week. The Bank of Japan and European Central Bank monetary policy meetings are Thursday, along with US Q3 GDP (forecast 2.5% y/y).  Wall Street will be active as it is a big week for quarterly earnings reports.

Turkey President Erdogan said he plans to expel the Canadian and US ambassadors and eight others because they demanded the release of a dissident. Traders expelled TRY, driving USDTRY to 9.8430 from Friday’s close of 9.6001. USDTRY has gained nearly 20% since the beginning of September.

Asia equity indexes closed on a mixed note.  Japan’s Nikkei 225 dipped 0.71%, while Australia’s ASX 200 gained 0.34%.

European bourses are trading flat to higher, as are Wall Street equity futures. WTI climbed 0.84%, and gold rose 0.27%.

US 10-year Treasury yields are 1.661%.

EURUSD is trading at 1.1603 in early NY, after sliding from its overnight peak of 1.166 following weak German data and higher US Treasury yields. The Ifo Institute said, “Sentiment in the German economy has clouded over.  The Ifo Business Climate Index fell from 98.9 points in September to 97.7 points in October.  Skepticism is increasingly evident in expectations.  Companies assessments of their current situation are also less positive.  Supply problems are giving businesses headaches.”

Today’s data should ensure the ECB sticks to its dovish outlook.  The intraday EURUSD technicals warn that a drop below 1.1610 would extend losses to 1.1550.

GBPUSD is weighed down by broad US dollar strength, and renewed Brexit issues. EU policymakers are extremely unhappy with the UK threat to trigger Article 16 of the Northern Ireland protocol and could retaliate by scrapping the Brexit trade agreement.

Next week’s Bank of England policy statement may have a hawkish bias after recent comments from the Governor and other officials, which may limit GBPUSD downside.

USDJPY climbed from 113.47 to 113.82 before easing to 113.65 in NY, as prices continue to track US Treasury yields.  The BoJ meeting should not offer any surprises with policymakers sticking to their dovish outlook.

AUDUSD and NZDUSD are underpinned by rising commodity prices but higher Treasury yields have helped limit gains.

Chart of the Day: Turkey USDTRY

Source:  Saxo Bank

FX open, high, low, previous close

Chart: Saxo Bank

China Snapshot

Today’s Bank of China Fix 6.3924, Previous 6.4032

Shanghai Shenzhen CSI 300 rose 0.40%% to 4,979.52

Evergrande Group says resumed work on 10 projects.

China NDRC forecasts Q3 growth at 5.4% (National Bureau of Statistics forecast is 4.9%)

Chart: USDCNY 1 month

Source: Yahoo Finance