Friday October 22nd, 2021

The US$ dips, oil prices rebound, equity markets and US yields strengthen ahead of Fed’s Chair Powell speech. Fed Chair Powell will be delivering a speech at 3pm est, this will be last chance for markets to get any insights on the Fed post pandemic policy before the Fed goes into the blackout period until the next policy meeting. Also of note today, Fed Daly will be speaking and US Markit PMI data will be out and could impact intraday markets. The US$ is set for its 2nd-week of declines, but the broader market narrative remains supportive of more US$ gains as rising US yields are expected to support the US$. In other news, China’s Evergrande secured funds to make its interest payment and avert a default. Equity markets bounced on the news Evergrande debt payment. US President Biden says the United States would come to Taiwan’s defense and has a commitment to defend the island China claims as its own. President Biden backs down on corporate tax highs and that he is open to altering the filibuster. Covid, the FDA & CDC signs off on Moderna and J&J vaccine boosters and ok’s “mix & match” shots. Eastern Europe’s are torn between defiance and regret over not getting inoculated as covid cases rise and countries go into fresh lockdowns. Covid cases in Germany have increased by 43% from the average 2-weeks ago. In currency markets, China will roll-out counter-cyclical measures on an appropriate time if policy tightening by major world economies leads to increase currency market fluctuations. CNY strengthens 0.2%, while Asian currencies firm 0.25% on average. Trading currencies strengthen with JPY up 0.2%, NZD, MXN & NOK firm 0.3%, ZAR rallies 0.45%, AUD Strengthens 0.55% vs US$.

Oil prices rebound, set for their 7th-week of gains with Brent Crude holding near US$85 a barrel. Oil prices rebound after initial losses in early Asian trading as concerns over tight supply and stockpiles prompted investor buying. C$ holds near 3-month highs despite the government saying it would wind-down its pandemic-era economic support. The correlation between C$ and Oil prices remains a primary factor for C$ strength, then coupled with rising domestic inflation and expectations of a rate hike signals C$ has room to strengthen further. Intraday markets will be focused Fed Powell speech, oil prices and CAD Retails sales for direction. Support holds at 1.2298 (Jul 6th), if breached look for 1.2152 (Jun 16th), while resistance holds at 1.2415.

Euro holds steady within its weekly range on a weaker US$ and positive PMI data. The US$ dipped as safe haven buying eased after China’s Evergrande avoided defaulting on its interest rate payment. Domestically German and EU manufacturing PMI showed that the business activity expanded, but service PMI remains under pressure. Expect Euro to remain capped below 1.1700 with the divergence between the FED and ECB on interest rate direction. Support holds at 1.1580, while resistance remains at 1.1670.

EURGBP edges higher as the GBP remains under pressure with today’s disappointing Retail Sales data and the weaker prospect of a BoE rate hike. Support remains at .8400 (1.1904) while resistance holds at .8490 (1.1778)

GBP dips below 1.3800 after weaker UK Retail sales data. The pound slipped below 1.3800 vs US$ after UK PMI data showed an unexpected contraction in September Retail Sales. On a positive note, UK PMI data surpassed expectations and on Brexit PM Johnson is also reportedly ready to compromise on the European Court of Justice’s ruling on Northern Ireland. Bias remains to buy GBP on dips with the prospect of rate hikes in the medium term and the NI protocol is moving in the right direction. Support resets to 1.3720, while resistance lowers to 1.3835.