Picture: Pixabay

October 5, 2021

US debt ceiling wrangle unnerving markets

Eurozone Services and Composite PMI data show growth moderated

US dollar mildly softer-GBP outperforms

FX at a Glance:

Source: IFXA/RP

USDCAD Snapshot   Open 1.2591-95, Overnight Range 1.2582-1.2628, Previous close 1.2589

USDCAD dropped on the back of rising oil prices and expectations that Opec + Russia would raise November crude production by 500,000 barrels/day, rather than the planned 400,000 b/d increase. They didn’t.  Opec claims to be afraid of a 4th wave coronavirus outbreak lowering demand.

USDCAD drifted higher throughout the day coinciding with the steep plunge in US equities, and continued overnight, peaking at 1.2628 just before Europe opened.  USDCAD is trading with a negative bias as S&P 500 futures suggest a positive open on Wall Street, and due to the prospect of higher oil prices.  However, USDCAD has plenty of support in the 1.2540-60 area. There is a chunky ($2.1 billion) 1.2615-20 option strike maturing today, which could make things messy around 7:00 am PT.

Technical view:  The USDCAD technicals are bearish below 1.2730 with a break below 1.2550, extending losses to 1.2480.  However, a break above 1.2740 -50 area suggests a retest of 1.2950.

For today, support is at 1.2550 and 1.2510.  Resistance is 1.2630 and 1.2660. Today’s range 1.2550-1.2630

Chart USDCAD daily

Source: Saxo Bank

G-10 FX recap and outlook

The US nonfarm payrolls report is due Friday and expected to show new jobs increased by 488,000.  The final result will fuel speculation about the timing of tapering, which is widely expected to be announced in November.

But that is then; this is now.

Traders got themselves lathered up about the US budget negotiations, debt ceiling, and the risk the government is forced to shut down.  Treasury Secretary Yellen said a debt default could occur on October 18.  That contributed to yesterday’s equity sell-off, as did Opec failing to raise crude production above the previously announced 400,000 b/day.  Those fears appear to have been assuaged overnight.  The major European equity indexes are higher as are S&P 500 futures, although they have a lot more ground to cover to recoup Monday’s losses.  US 10-year Treasury yields are hovering around 1.50%.

Chinese government actions continue to unnerve traders and raise concern of a slowdown in global growth. The Department of U Can’t added a ban on speculating on luxury goods, and commodity speculation to the long, long list of things Chinese people can’t do.

EURUSD traded narrowly in a 1.1591-1.1621 range. The Final September Eurozone composite Index was 56.2 (August 59.0) and the Services Index was 56.4 (August 59). The Markit survey noted “Although indicative of a strong expansion in business activity, it marked a considerable slowdown from the expansions seen between June and August, which were among the fastest in 23 years of data collection. EURUSD continues to trade with a negative bias below 1.1650.

GBPUSD continued to rally, rising from 1.3586 to 1.3633 with prices getting an added boost from EURGBP sales. UK Services PMI rose to 55.4 from 54.6, which Markit says indicates another strong recovery, but supply constraints are leading to escalating inflation pressures.  A break above 1.3640 targets 1.3740.

USDJPY climbed alongside gains in US 10-year Treasury yields, which bounced back to the 1.50% area.  Prices were also underpinned by rumours the new Prime Minister planned to raise personal taxes. Tokyo inflation rose 0.3% y/y in September.

AUDUSD dropped from 0.7293 to 0.7251 after the RBA left interest rates and monetary policy unchanged, then rebounded to 0.7265 in NY.  NZDUSD is trading at the top of its overnight 0.6930-0.6969 range ahead of tomorrow’s RBNZ decision.  The RBNZ is widely expected to raise interest rates by 0.25% and expected to suggest another rate hike in November.

US ISM Services PMI data and Canada Trade reports are on tap.

Chart of the Day- NZDUSD

Chart: Saxo Bank

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