Wednesday October 27th, 2021

The US$ is steady, oil prices fall, equity markets weaken, and US yields are mixed amid increasing risk-off mood.  The US$ holds steady as market mood worsens on increasing Sino/US tensions, concerns over Chinese property developers and ahead of a flurry of Central Bank meetings over the next 7 days. Intraday investors will focus on September Durable Goods Orders and Nondefense Capital Goods Orders ex Aircraft which are both expected to weaken vs August results. In other news, China warns the US over its support for Taiwan saying it poses ‘Hugh Risks’ to Sino/US ties.The US FCC revokes authorization of China Telecom US subsidiary to operate in the US, citing national security concerns. The US Senate Democrat unveils two new tax proposals; a ‘billionaires-tax’ on unrealized gains on their assets, and a corporate minimum tax plan to enact a 15% minimum corporate tax on declared income of large corporations. China developers propose offshore debt maturity extension and restructuring to Chinese regulators, China Evergrande’s shares falls. Covid, the US FDA panel recommends Pfizer’s low dose covid vaccine for kids 5 to 11. Brazil Senate committee approves a report calling for President Bolsonaro to be indicted for his handling of the covid pandemic. Ukraine urges citizens to get vaccinated as its daily covid rates hit record highs. In currency markets, Russian RUB falls from its 16-month peak and Turkish lira rebounds as political tensions ease. CNY and Asian currencies weaken 0.2% on average vs US$. Trading currencies are mixed as JPY strengthens 0.35% as safe haven buying returns, AUD is flat while MXN is down 0.1%, NZD falls 0.45% NOK weakens 0.66% and ZAR tumbles 1.3% vs US$.

Oil prices fall by 1% after industry data showed crude oil stockpiles rose more than expected and fuel inventories unexpectedly grew by 2.3 million barrels last week in the US. C$ weakens amid a rise in risk off sentiment, weakening oil prices and ahead of the BoC interest rate decision. The BoC is not expected to raise rates, but is expected to raise its inflation forecast, continue towards ending its stimulus to its covid bond buying program and may signal the timing of first interest hike since Oct 2018. Support rises to 1.2335, if breached look for 1.2287 next, while resistance rises to 1.2449 (14 Oct).

Euro initially dips below 1.1600 as risk-off sentiment returns. Investors are concerns that the ECB will maintain its dovish tone which is an increasing divergence with other global central banks including the FED who are likely to increase interest rates over the medium term. If the ECB were to take a hawkish step in their comments, it would boost the Euro. Focus will be on Sept Durable Goods and Nondefense Cap Goods Orders ex Aircraft for intraday direction ahead of US GDP & the ECB meeting on Thursday. Support holds at 1.1580, while resistance remains at 1.1670.

EURGBP rebounds on GBP weakness as the Brexit tone shifts and UK covid cases comeback into focus. Support remains at .8400 (1.1904) while resistance holds at .8490 (1.1778)

GBP drops towards 1.37 ahead of US data. Brexit tensions return as Thierry Breton, the internal market commission for the EU argued that Brexit has resulted in an “economic catastrophe” for Britain, while France intends to retaliate against Britain’s refusal to offer more permits for French fisherman. Adding further pressure to the pounds is the increasing death rates from covid which have hit their highest levels since March and daily infections rates have also jumped. Expect the pound to remain under short-term pressure into the US Durable Goods numbers. Support resets to 1.3675, while resistance lowers to 1.3795.