Wednesday October 13th, 2021

The US$ and oil prices weaken, equity markets are mixed, while US yields ease ahead of the US inflation data and the FOMC minutes today. The US Consumer Price Index ex food & energy (y/y) is expected to hold steady at 4% and m/m is expected to increase from 0.1% to 0.2%. Markets have mostly priced in a hawkish tilt in the Fed’s policy outlook, a strong CPI number could be the last data needed to reassure investors for the beginning of tapering next month. The FOMC’s September meeting minutes could highlight policymakers’ willingness to downplay employment concerns in favour of inflation controls. In other news, the White House will unveil a plan today to help West Coast USA ports stay open 24/7 to ease supply chain bottlenecks. China trade surplus with the US rises to monthly record in September. The US House approves debt limit increase which will last through part of December. China coal imports surge, prices hitting record highs as floods add to energy woes. Covid, the US will lift the Canada & Mexico land border restrictions in November to vaccinated visitors. American Airlines and Southwest Airlines rebuffed Texas governor and will comply with the vaccine mandate. In currency markets, Asian equity markets were under pressure amid inflation fears, helping the US$ holds near 1-year highs vs a basket of major currencies. CNY is up 0.1% Asian currencies are up 0.3% on average vs US$. Trading currencies all strengthen in early trading vs the USD with AUD & JPY are up 0.1%, NZD firms 0.2%, MXN extends 0.35%, NOK strengthens 0.6% while ZAR rallies 0.9%. Intraday FOMC Minutes and US CPI will drive US$ direction.

Oil prices dip on concerns that faltering economic growth could impact longer term oil demand. The Iraqi oil minister at a conference in Moscow said oil prices are unlikely to rise further and went on to say “the market should be balanced” when asked if OPEC+ should produce more oil than planned. C$ extends its gains to a fresh +2month high finding support by stronger oil prices and Canadian yields climbing to highs last seen in March 2020. No Canadian data today, focus remains on oil prices and US data for intraday direction. Support holds to 1.2418 (Jul 31st), if breaks look for 1.2298 (Jul 6th) next, while resistance remains at 1.2539.

Euro holds within its tight range ahead of US inflation data. German inflation data came out as expected, holding steady at 4.1%, while EU industrial production y/y beat expectations at 5.1% vs 4.9% expected. On Tuesday ECB De Galhau reminded markets that ending the Pandemic emergency Purchase Program will not be the end of the “very accommodative” policy. Short term market bias favours a stronger US$ and expect Euro to hold below 1.16 vs US$. Support at 1.1520, while resistance lowers 1.1605.

EURGBP holds flat ahead of US inflation data.  Support holds at .8460 (1.1820) while resistance holds .8580 (1.1655).

GBP remains firm and continues to edge higher as hawkish BOE remains the primary focus for investors. The UK economy picked up in August, helping underpin the potential of a BOE interest rate hike. UK GDP grew at 0.4% in August vs contracting 0.1% in July, while Industrial Production & Manufacturing Production both expanded at a stronger pace than expected. On Brexit, the EU to propose easing checks on British trade to N.Ireland, but stopped short of the overhaul London is demanding of post-Brexit trading rules. US Inflation and FOMC minutes will drive intraday direction but expect GBP to hold firmer than its peers. Support holds at 1.3580 and while resistance remains at 1.3675.