Friday October 15th, 2021

The US$ is flat, oil extends gains, equity markets and US yields are up amid improving risk sentiment. The US$ is heading for its first weekly decline vs a basket of major currencies as global risk appetite increased after the FOMC minutes on Wednesday pointed to tapering into Nov/Dec. Intraday focus shifts to US Retail Sales & Michigan Consumer Sentiment Index market direction today. A strong retail US Retails sales result today, the rebound in US yields and dovish comments from the ECB we could see the US$ rebound from current lows. In other news, China’s central bank says Evergrande is unique and most real estate developers are stable. Bitcoin tops US$60k on growing optimism that the SEC will list its first Bitcoin ETF. The UK says the EU must concede more on outstanding Brexit issues. US President Biden signs the bill raising US debt limit, averting default. Covid, Israel sees a sharp drop in covid cases after 4-months into one of its worst covid outbreaks. Australia allows overseas arrivals without requiring them to quarantine. UK lab suspected over concern that it incorrectly gave negative PCR test results to people who were infected. In currency markets, JPY is down 10.75% ytd and holds near 3-year lows in part due to its high dependance on imported oil, while ZAR rallies 2.6% mtd on a softer dollar and higher commodity prices. CNY is up 0.1%, while Asian currencies are mixed with THB, PHP, MYR & KRW which are down 0.2% on average vs US$ and SGD, TWD, IDR are up 0.1% on average vs US$. Trading currencies are mixed with JPY down 0.55%, AUD & MXN are flat, while NZD is up 0.25%, NOK strengthens 0.4%, ZAR rallies 0.65% vs US$. 

Oil prices continue to rally with Brent Crude testing above US$85 pb a fresh 3-year high on the back of forecasted supply shortfalls expected over the next few months as high Gas & Coal prices stoke a switch to oil products. US WTI crude is heading for a 3.3% gain on the week, up for an 8th straight week. C$ extends its rally for a 4thstraight week, hitting its highest level in over 3-months as high oil prices increases the case for Bank of Canada rate hikes in 2022. The Canadian economy has recovered from the 2nd quarter contraction, with factory orders growing 0.5% in August vs July and markets will be watching Cad wholesale sales for direction. Intraday oil prices, US Retail sales and Michigan Consumer Sentiment will provide direction. Support resets to 1.2298 (Jul 6th) next, while resistance holds at 1.2490.

Euro stalls near 1.1600 vs US$ amid dovish ECB comments. Euro benefited from the rise in global risk on sentiment post Wednesday’s FOMC minutes & US CPI results. Dovish comments from the ECB who downplayed inflation concerns but commented that they are weighing options to ease the transition out of the Pandemic Emergency Purchase Program (PEPP). Intraday US Yields strength, US Retail Sales & Michigan Consumer Sentiment Index will provide direction to the US$ today. Support holds at 1.1550, while resistance remains at 1.1640.

EURGBP weakens further with the ECB maintaining inflation is transitory, while the BoE shifts towards its first-rate hike since the beginning of the pandemic.  Support holds at .8460 (1.1820) while resistance holds .8580 (1.1655).

GBP extends gains, testing fresh week 3-week highs boosted by BoE rate hike optimism. The pound extends gains, up 2% mtd vs US$ and up 1.7% vs Eur after a series of hawkish comments from the BOE pointing towards their first-rate hike since the start of the pandemic. Brexit Minister Frost continues to press on the EU on their compromise over the Northern Ireland protocol saying that the EU needs to make significant more changes if they there is to be a deal in NI. Support rises to 1.3685 and while resistance holds at 1.3750 (Sep 23), if breached look for 1.3846 (Sept 16th) next.