Thursday October 14th, 2021

The US$ weakens, oil prices rally, equity markets firm while US yields are mixed after the FOCM minutes point to tapering in Nov/Dec. Wednesdays much anticipated US CPI came out as expected, and the Fed minutes pointed to tapering as soon as November. The US$ slipped from its recent 1-year high on broad selling pressure as market sentiment improved with the prospect of Fed tapering. Focus shifts to US initial Jobless claims and September PPI figures today, but the data is unlikely to trigger a significant reaction from investors. In other news, Saudi energy minister dismisses calls for OPEC+ to speed up output increases. Energy crises could threaten global economic recovery says IEA. The US is committed to WTO and wants it to succeed, trade rep Tai says. China’s coal prices remain high, and its power crunch increases inflation concerns. The US remains hopeful of reaching a deal with the EU on steel tariffs by the end of October. Covid, Hungary’s daily covid cases rise above 1,000 for the time during fourth wave of the pandemic. The English school return saw increased covid cases in children, but cases in adults fell. In currency markets, expect to see some consolidation for the US$ after weakening on Wednesday. CNY weakened 0.2% while Asian currencies were up 0.3% on average vs US$. Trading currencies are mixed with JPY down 0.1%, while MXN is flat, AUD & ZAR are up 0.45%, NZD strengthens 0.85% and NOK rallies 0.95% vs US$. 

Oil prices rally +1% after the Saudi energy minister dismisses calls for OPEC+ speeder oil output increases. He went on to say “what we see in the oil market today is an incremental price increase of 29% vis-à-vis 500% increases in (natural) gas prices and 300% increases in coal prices, 200% increase in natural gas liquids. C$ extends its rally to 4-month highs as energy prices continue to surge and Cad yields remain strong. Markets will remain focused on energy prices as they continue to be the primary driver of C$ strength. Support resets 1.2360 (minor), if breaks look for 1.2298 (Jul 6th) next, while resistance lowers to 1.2490.

Euro breaches 1.16 amid upbeat sentiment and a US$ pullback. Markets stalled after the US CPI & FOMC minutes and after hearing the prospect of US tapering demand for Euro returned. The prospect of a deal over steel tariffs by the end-October added support for the Euro helping it break through the 1.16 level again. The divergence between the ECB remain accommodating and FED tapering will likely keep pressure on the Euro going forward. Intraday the US data is unlikely to trigger any significant reaction and we could see Euro extend short term gains towards 1.1640. Support rises to 1.1550, while resistance resets to 1.1640.

EURGBP remains under selling pressure with the prospect of a BOE rate hike increase and improving NI protocol conditions.  Support resets .8410 (1.1890) while resistance holds .8580 (1.1655).

GBP continues its advance amid Brexit optimism, weaker US$ and a hawkish BOE. GBP broke through 1.37 vs US$ as the dollar weakened and growing investor optimism for the pound. The EU proposal to relieve some pressure on the movement of goods to Northern Ireland is a major step forward to finding a long-term solution. Adding further support to the pound is the expectation that the BOE may raise interest rates, two BOE policy makers will be speaking today. Support rises to 1.3640 and while resistance resets to 1.3750 (Sep 23).