Wednesday October 20th, 2021

The US$ edges higher, oil prices dip, equity markets are mixed while US yields firm ahead of the US Fed’s Beige book. The Fed’s beige book reports on the current US economic situation which may provide support to US yields/US$ if it reaffirms increasing pricing pressures across the US. The US$ index is consolidating below 94.00 as markets balance between global risk appetite and the prospect of US Fed tapering into November. Focus will also be on Fed’s Quarles speech, US Monthly Budget Statement (sep) and US 20-year bond auction which could impact intraday direction. In other news, Chinese officials sought to reassure investors and homeowners over the debt crisis impacting the countries property sector. Oil prices drop as China considers intervention to ease record high coal prices. Covid, NYC public workers brace for potential job losses as covid vaccine mandates kick in. The health service lobby is pushing for increased restrictions as UK hospitals are close to being overwhelmed by new wave of infections. In currency markets, Japanese JPY slips to a 4-year low as global risk appetite grows. Russian Rub dips from 15-month highs as markets await news on possible new covid restrictions. CNY dips 0.2% while Asian currencies advance 0.1% on average vs US$. Trading currencies are mixed with JPY down 0.1%, NOK weakens 0.4%, while MXN inch higher 0.05%, AUD, ZAR & NZD are up 0.15%.

Oil prices weaken after the Chinese state planner said it was looking at ways to intervene to ease record high prices of fuel. The Iraqi oil minister says oil prices at US$75 – US$85 is an acceptable long-term price, but also said oil prices could hit US$100 in Q1 or Q2/2022. C$ holds near 3-month highs vs US$ as energy prices continues to support the loonie. Focus shifts to today’s key BOC CPI data which is expected to edge higher to 3.6% vs 3.5% in August. Markets will be watching the inflation data closely for clues on the BOC policy outlook and the prospect of a faster-than-expected interest rate hike. Support holds at 1.2298 (Jul 6th), if breached look for 1.2152 (Jun 16th), while resistance lowers to 1.2415.

Euro holds above 1.16 vs US$ as EU inflation data meets expectations. Higher US yields supporting the US$ is keeping pressure on the Euro despite the EU hitting its CPI expectations. Overall, the market mood remains upbeat but the Fed’s & ECB’s policy divergence on tapering/raising interest rates will likely cap any Euro strength in the medium-term. Support edges higher to 1.1580, while resistance resets to 1.1670.

EURGBP rebounds after the UK inflation data misses expectations and reduces the prospect of a short-term BOE interest rate hike. Support lowers to .8400 (1.1904) while resistance lowers to .8490 (1.1778)

GBP drops below 1.38 vs US$ as the UK inflation data disappoints.  The pound weakened quickly after the UK inflation missed expectations and douses any short term BOE rate hike expectations. Rising covid cases across the UK and the prospect of fresh covid-restrictions could put further pressure on the pound. Expect GBP to remain under pressure as focus will be on the Fed Beige book and Fed Quarles comments for intraday direction. Support resets to 1.3720, while resistance lowers to 1.3835.