Sat, Oct 23, 2021 @ 17:15 GMT

Inescapable USD Pattern

The yo-yo in the US dollar on economic data and tapering continues on Monday, in a pattern we’ve highlighted before. EUR and NZD are the strongest currencies of the day, while GBP is the weakest.

A pattern continues to repeat in US dollar trading. Positive headlines on economic data give it a lift and then it slowly bleeds the gains away. We have seen it three times now with CPI, the Fed minutes and most recently with the Markit PMIs. The unwind from the latter began on Monday as the dollar sagged on a positive risk tone’ yields remain stubbornly low. Sparking some dollar outflows is that global covid cases are turning lower, including in India and Brazil. We’re still in the timeframe where the US is open and most of the world is shut, but that line will blur imminently.

One spot to watch particularly closely is oil. An Iran deal could be struck as early as today but it’s likely priced in. Crude has rallied hard in the past two days after three days of selling on Iran headlines. The focus is increasingly shifting to the demand side and the likelihood of a boom in automobile driving in the months ahead followed by a resumption of business travel later in the year.

Oil isn’t necessarily a great economic barometer because OPEC+ can change everything but it’s key to the inflation debate. A further leg higher in crude would signal a new phase in price hikes that could shake global central bankers from their dovish perch.

Bank of Canada governor Tiff Macklem has already seen enough. On Monday, he explicitly said that tapering is the right move for the economy. The loonie has been the best performer so far this year and it’s not tough to see why: We’re in the beginning of the economic cycle and commodities have boomed.

Canada was on holiday Monday but will return to a busy day of trading on Tuesday. US data includes a series of home prices indexes and new homes sales along with the Richmond Fed and consumer confidence.

Ashraf Laidi
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.

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