Tuesday October 19th, 2021

The US$ weakens, oil extends its rally, equity markets rebound while US yields pull back as poor US industrial data on Monday tempers hawkish Fed’s expectations. The US$ index vs a basket of major currencies drops ½%, trading at multi-week lows on a resurgent in appetite for risker assets. Focus shifts to today’s US housing data and Fed’s Waller and Bowmans speeches for expectations on Fed tapering into November. In other news, Russia signals no extra gas for Europe without Nord Stream 2 pipeline. China’s no 2. developer Evergrande makes its onshore coupon payment but concerns remain for its offshore debt. The EU warns Poland it will pay for challenging the EU common law. Covid, The FDA to allow “mix and match” approach for covid booster shots. Italy puts in force a new law requiring workers to test or vaccinate. Pfizer asks the FDA to authorize its covid vaccine for children 5 to 11. In currency markets, Russian RUB extends to 15-month highs on surging energy costs, China CNY tests 4-month highs as property concerns ease and GBP tests 1-month highs on anticipate of an interest rate hike. CNY rallies 0.6%, while Asian currencies strengthen 0.25% on average vs US$. Trading currencies saw JPY up 0.1%, MXN higher 0.4%, NOK & ZAR strengthen 0.65%, AUD firms 0.75%, NZD rallies 0.9% vs US$. 

Oil prices advance +1% as a supply crunch in natural gas, electricity and coal continues across the globe. Falling temperatures in China, the world’s biggest energy consumer, revived concerns if it can meet its domestic demand for heating. C$ extends gains towards 3-month highs on a combination of a weaker US$ and surging commodity prices. Monday’s BOC’s Business Outlook Survey indicator reached its highest level on record in Q3 even as supply chain and costs issues grow. Intraday energy prices will continue to dictate direction, while focus will shift to Cad CPI data out on Wednesday. Support resets to 1.2298 (Jul 6th), if breached look for 1.2152 (Jun 16th), while resistance lowers to 1.2415.

Euro spikes to a 3-week high amid falling US yields and US$. Euro retests 1.1650 recovering lost ground as US yields eased after Mondays weak US Industrial data cast doubts over the prospect of Fed tapering in November. Intraday ECB and FED policy makers speeches will be watched closely for signals of future direction. ECB De Galhau noted that there is no reason for the ECB to consider a rate hike until 2023. Expect Euro to remain capped on rallies with the ECB negating any short-term prospects of interest rate hikes. Support holds at 1.1550, while resistance remains at 1.1640.

EURGBP weakens as the ECB maintains that inflation is transitory and its interest rates will be static, while the BoE shifts towards its first-rate hike. Support lowers to .8400 (1.1904) while resistance lowers to .8490 (1.1778)

GBP breaches 1.3800 amid a hawkish BOE and a bearish US$ sentiment. The pound is managing to maintain its bullish momentum into a 5th trading session as investors remain focused on the BOE policy outlook, after the BOE Governor argues they will act to contain inflation. Brexit issues continue to simmer in the background and is having a limited impact on the pound. Focus shifts to US Housing data and Fed speakers today, but bias remains for a stronger GBP. Support rises to 1.3760, while resistance resets to 1.3846 (Sept 16th) next.