Tuesday November 1st, 2022

The US$ weakens, oil prices strengthen, equity markets rally, while US yields ease as risk-on sentiment returns. Risk sentiment improves as investors await the expected Fed 75bps hike tomorrow, as strategists believe aggressive hiking is near nearing an end. The Fed is expected to taper future hikes to 50bps in Dec and pause after one more 25bps hike in Q1/23, providing the prospect of relief for markets. Today sees US ISM Manufacturing PMI, Manufacturing Employment Index, Jolts Jobs Opening, CAD S&P Global Manufacturing PMI. In other news. President Biden warns big oil of windfall profit tax. In Brazil, President Bolsonaro keeps silent after his election loss. Australia central bank increases rates by 25bps, RBA sees inflation peak at 8% in 2022. Ukraine’s front line comes under pressure; UN warns of rising food prices as export deal crumbles. US oil production nears 12 mln barrels/day, at pre-pandemic high. In Currency markets. Offshore Chinese Yuan slips as China sets weakest fixing levels since 2008. The US$ index slips as risk-sentiment improves after the RBA joins the BoC & ECB statement scale back future pace of rate hikes. CNY firms 0.4% while Asian currencies are up 0.3% on average vs US$. Trading currencies have rebounded with MXN edges higher 0.15%, AUD up 0.5%, JPY, SEK, ZAR & CHF firm 0.7%, while NZD & NOK strengthen 0.85% vs US$.

Oil prices firm after International Energy Forum suggested oil prices could rise to $100 a barrel again on severe Russian supply losses once the EU tightens sanction next month. C$ firms as risk-sentiment improves, oil prices rally and the US$ gives up gains on expectations the Fed is close to pivoting on its hawkish rate hike stance. Intraday US & CAD Manufacturing PMI will help provide direction. Support resets to 1.3500 while resistance lowers to 1.3600.

EURCAD slips as oil prices strengthen supporting the C$. Support resets to 1.3400 while resistance holds steady at 1.3600.

Euro retests .9900 as the risk sentiment improves. Euro improves on the combination of improving risk-on sentiment and hawkish ECB comments. The ECB must keep raising rates even if recession risk rise, Lagarde says. Anticipation that the Fed could signal that it will scale back the pace of future rate hikes helped improve market risk sentiment. Intraday US Manufacturing PMI, Jolts Jobs opening, and US Redbook Index will help provide market direction. Support holds at .9870 while resistance resets to .9990.

GBPEUR edges higher ahead of the BoE expected rate hike on Thursday. Support resets to 1.1550 (.8655) while resistance remains at 1.1700 (.8547).

GBP steadies around 1.1500 as risk-on flows provides support to the pound. The US$ remains heavy amid an improving market sentiment, tracing US yields lower. Investors are expected to remain cautious heading into the BoE rate hike on Thursday and ahead of the delayed government economic plan. Intraday US data will provide direction to the markets. Support resets to 1.1560, while resistance rises to 1.1670.