Tuesday October 26th, 2021

The US$ and oil prices dip, equity markets firm, while US yields are mixed as investors await Wednesday’s Durable Goods data. Today’s Housing and Consumer Confidence data isn’t expected to have a major impact on market direction today. The Fed remains in a media blackout ahead of its next meeting, so investors are expected to remain sidelines pending Wednesday’s key Durable’s goods data for market direction. In other news, China’s Vice Premier Liu He & Treasury Secretary Yellen via a video call discussed macroeconomic situation and bilateral relationships. US President Biden will join the ASEAN virtual summit today. Democrats trims President Biden’s social spending plan as they press to strike a deal this week. Covid, the US imposes new international travel vaccine rules. Russian covid cases hit record highs and imposes new curbs. Moderna says its covid vaccine protective is safe in young children. Hong Kong tightens quarantine restrictions. In currency markets, The US$ index weakens slightly while the CNY is up 0.1% inching higher after the Sino/US talks and Asian also firm 0.2% on average vs the US$. Trading currencies are mixed with JPY down 0.25%, while MXN & NOK are up 0.1% and ZAR, AUD & NZD firm 0.25% vs US$.

Oil prices dip but hold near recent multi-year highs as short supply issues continue to support the firmer oil prices. China’s energy & coal markets have cooled somewhat after the government intervention, but as winter approaches energy prices remain elevated. C$ firms in overnight trading on firm oil prices and the US$ slipping on improving risk sentiment. Focus remains firmly on Wednesdays BOC’s rate statement and its monetary policy report. The central bank is expected to announce it will continue its asset tapering, but its latest forward guidance is key to C$ direction. Intraday expect markets to remain within its current ranges as investors sit on the sidelines until Wednesday. Support holds at 1.2287, if breached look for 1.2152 (Jun 16th), while resistance holds at 1.2415.

Euro holds above 1.16 but remains vulnerable to further weakness. The ECB monetary policy meeting on Thursday is expected to see the central bank remain dovish and the divergence between the FED & ECB monetary policies will likely keep pressure on the Euro in the short-term. Markets are expected to have a muted reaction to today’s US data releases with investors sidelined until Durable goods Wednesday and the ECB meeting Thursday. Support holds at 1.1580, while resistance remains at 1.1670.

EURGBP weakens to a key support level on expected dovish ECB stance on Thursday and Brexit optimism supporting the GBP. Support remains at .8400 (1.1904) while resistance holds at .8490 (1.1778)

GBP rallies breaking through 1.38 as Brexit talks are eyed in London. The pound rallies as investor optimism grows that an agreement over the Northern Ireland protocol is possible despite the Brexit ministers’ comments. Mr. Frost the minister responsible for implementing the Brexit deal said Monday that the current EU proposal doesn’t go far enough. Adding support to the pound are the ongoing hawkish comments from the BoE and the prospect of a rate hike into 2022. Support holds 1.3720, while resistance remains at 1.3835, if breached look for 1.3880 next.