Wednesday September 16th, 2020

The US$ fall continues ahead FED statement where it is anticipated to raise its economic expectations and vow to keep rates low until at least 2023. At its last FOMC meeting before the election, the FED is expected to keep rates on hold and may increase its bond-buying program to support the US recovery. Currency markets rallied on dovish Fed bets with JPY hitting two-week highs vs US$. CNY extends its rally, supported by positive domestic economic data and hitting 16-month highs vs US$. Asian currencies are up 0.3% on average, while AUD, NZD, NOK & MXN are up ½% on average vs US$. ZAR continues to rally up ¾% today and up 3.7% vs US$ month to date. Alongside the FED statement today, investors will be watching US Retail Sales data at 8.30EST for direction.

Oil prices strengthen +2% overnight as hurricane Sally closed US offshore production, as well reports showed US crude inventories unexpectedly dropped. Oil prices are expected to weaken into October with rising Covid cases, falling demand which has seen both OPEC and IEA both cutting their demand forecast. C$ benefited from the strong oil prices today and remains within its current trading range. Bias remains to buy US$ on dips with the likelihood of further oil price weakening after hurricane Sally passes. Canadian investors will be watching BoC CPI data, expect Aug CPI at 0.9% vs 0.7% in July. Support at 1.3120, with minor resistance at 1.3210, if breached 1.3270 next.

Eur continues its gradual rise vs US$ as it awaits the FED rates decision and US Retail sales results. If the FED paints a worrying economic picture, we could see a resumption of US$ safe haven buying and weakening Euro. Coronavirus cases continue to increase across the EU, any setbacks in vaccine news will likely have a negative impact on the currency. Analysts are forecasting Euro to remain above 1.1850, with Goldman Sachs suggesting 1.30 longer-term vs US$. Bias remains for Euro to re-test 2020 highs after the ECB indicated it would not intervene. Support at 1.1800, with resistance remaining at 1.1930, if breached 1.2010 (2020 highs)

GBP strengthens on a weakening US$ ahead of the FED today and the BoE interest rate decision on Thursday. BoE is expected to keep rates on hold but are likely to conclude an increasing downside risk to the economy due to Brexit uncertainty and renewed coronavirus restrictions. GBP recovered from last week’s selloff, which was its worst weeks performance in 6-months, but the likelihood of further GBP volatility remains high as Brexit tensions rise. The market will watch to see if the UK PM is able to find a compromise to the current Brexit standoff and if the UK can avoid breaking international laws.  Support 1.2850 with resistance at 1.3020.