Thursday October 21st, 2021

The US$ rebounds, oil prices weaken, equity markets are mixed while US$ yields strengthen ahead of US jobs and manufacturing data. The US Dept of Labor will publish its weekly Initial Jobless claims which is expected to hold steady near 300k. Sept Existing Home Sales and Oct Philadelphia Fed Manufacturing Index (movement of manufacturing) which expected to dip to 25 from previous 30.7%. The US$ has gained on strengthening US yields and safe-haven buying on renewed fears over China Evergrande default concerns. In other news, China Evergrande shares tumble 12.5% after its US$2.6bln asset sale falls through. EU Leaders set to put pressure on Poland over a court ruling that questioned the primacy of EU laws. Oil prices test 3-year highs before retreating as investors take profits. Covid, the US FDA clears Moderna and J&J covid vaccine boosters, allowing “mix & match” shots. The EU drug regulator will likely delay an approval of Russia’s Sputnik V vaccine until at least Q1/22. Australia and China both report spikes in new covid cases. In currency markets, safe-haven JPY, CHF and US$ rebound as risk currencies rally pauses. CNY dips 0.05%, while Asian currencies are down 0.1% on average vs US$. Trading currencies are mixed with JPY up 0.25%, while MXN & NOK are down 0.25%, AUD & NZD fall 0.35% and ZAR weakens 0.7% vs US$. 

Oil prices hit a fresh multi-year high above US$86 driven by tight supply, then retreated as investors took profits on signs the current rally is overstretched. Oil also came under pressure from a drop in coal and natural gas prices, with coal falling 11% today after China signaled it may intervene. C$ weakens slightly from Wednesday’s 3-month highs as oil prices ease and markets consolidate ahead of Canadian employment data and New Housing Price Index. Bias remains for a stronger C$ into Q4 with ongoing high energy prices and the increasing prospect for a BoC rate hike as inflation levels remain high.  Intraday Oil prices, Cad and US data will dictate daily market direction. Support holds at 1.2298 (Jul 6th), if breached look for 1.2152 (Jun 16th), while resistance holds at 1.2415.

Euro dips below 1.1650 as risk-on mood eases and US yields strengthen. Euro slipped below 1.1650 as risk sentiment damps on China Evergrande concerns, a dovish ECB and rising US yields. ECB de Galhau reiterated that the ECB could afford to stay patient as the inflation spike is expected to remain temporary. Our bias remains that Euro will remain capped, and the risk remains for a weaker Euro into Q4. Support holds at 1.1580, while resistance remains at 1.1670.

EURGBP holds relatively steady as both Eur and GBP came under selling pressure vs US$ as risk-on mood eases. Support lowers to .8400 (1.1904) while resistance lowers to .8490 (1.1778)

GBP holds around 1.3800 as risk sentiment eases and the prospect of BoE rate hikes slips after soft UK inflation results. The pound has stumbled and could come under further selling pressure as November BoE rate hike bets fade, Brexit issues continue and the prospect of fresh covid restrictions as hospital cases spike. Intraday US data releases and safe-haven US$ flows could keep pressure on the pound. Support resets to 1.3720, while resistance lowers to 1.3835.