Sample Category Title

[php_everywhere instance="1"]

OPEC and global energy risks; Central Banks and NFP report are drivers of the week

Market uncertainty lingers but the greenback’s haven appeal remains muted, as a global energy crisis threatens recoveries across the globe. Stocks are slightly on the back foot to start the week and the dollar remains feeble as the 10-year yield provides no support. Uncertainty out of China around a property developer giant and rising energy prices, with the UK being hit the worst, maybe weighing on market sentiment. Global supply bottlenecks are not helping economies at this point either.

The US dollar index has fallen below the 94.00 mark, which has aided the euro to steer above the $1.1600 handle after recently finding its feet around the $1.1560 level. Moreover, weakness in the greenback has floated the pound towards the $1.3600 barrier.

This week’s focus regarding the greenback is due to be centered around the NFP payrolls report for September, which seems to be receiving growing pressure due to its relationship with shifting Fed officials’ assessment on whether to announce the tapering launch in November’s meeting and when the taper timeline should begin.

Fed officials will shift away from their bond buying support when clear progress is being made on inflation and employment, and thus a reasonably strong NFP jobs report this Friday could aid the Fed to solidify reasoning behind starting the tapering process.

Good figures for this week’s NFP could significantly aid the expectations of a November announcement on tapering, but weaker results may cause the Fed to highlight concerns around employment and maybe even delay a little longer the withdrawing emergency pandemic support for the economy, again taking into consideration the elephant in the room, inflation.

The USD/CHF pair has dipped past the 0.9280 trough down to 0.9250, while USD/JPY is largely unchanged just above the 111.00 hurdle.

Gold’s recent drop is consolidating around the $1,750 mark.

OPEC strikes, and commodity currencies firm

The Organization of Petroleum Exporting Countries (OPEC) and the Joint Ministerial Monitoring Committee (JMMC) have recommended proceeding with a 400K per day hike in production, which is supportive to rising oil prices and has pushed WTI oil futures above the $77.00 a barrel mark.

USD/CAD has glided below the C$1.2600 mark and is dipping past the C$1.2592 trough. Higher oil prices as well as a resilient economy, despite the threatening delta variant, has helped the Canadian dollar retain its potency, which has steered the USD/CAD pair lower. Later in the week, Canadian PMI and employment data are due, and the results may counter or exacerbate any dollar mishaps around the NFP jobs report, and thus volatility in the pair. Canadian August building permits came in slightly softer at -2.1% than the forecast of 3.3% but better than July numbers of -4.1%.

The antipodean currencies are slightly capitalizing on dollar weakness, with the kiwi performing marginally better at 0.6975 than the aussie, which is at 0.7290. This week the RBNZ and the RBA are due to deliver their outcomes of their decision on interest rates. Expectations of a more hawkish RBNZ may disappoint markets, as concerns of the rise in infections may hamper the central bank’s decision on the pace and size of expected rate hikes. Such a scenario could see the kiwi surrender some of its latest gains. The more wary RBA is likely to leave interest rates unchanged until February when they will reassess their bond purchases, and thus aussie volatility could remain centered around dollar strength and related commodity prices.

Later at 23:30 GMT, Japan’s core yearly CPI is scheduled, while at 00:00 GMT, the New Zealand ANZ monthly commodity prices will be released.

Then at 00:30 GMT, Australian trade balance and monthly retail sales are due.

Markets

Core bond yields during most of European dealings followed commodity prices higher. After European noon and with US dealers about to join, some hesitation kicked in. On balance, the US yield curve still bear steepens with yields adding 1.2 bps (2-yr) to 3.4 bps (30-yr). Changes on the German curve vary between +0.3 bps (2-yr) and +1.4 bps (30-yr). Energy prices in general remain upwardly oriented as the supply/demand mismatch continues dominating media headlines. Brent crude took out $80/barrel as OPEC+ JMMC recommends to proceed with 400k b/d production hike and not accelerate the process. European stock markets mostly traded with small gains after opening on the back foot. Asian markets (excl China; closed for Golden Week) felt tremendous stress from the suspension in Evergrande shares. Last Friday’s correction lower in the dollar continued. The trade-weighted greenback drifted from the low 94-area to 93.80. The mirror image in EUR/USD is a return north of 1.16. Comments by vice-governor de Guindos (see below) didn’t additionally boost the single currency as witnessed by EUR/GBP’s flipflopping around EUR/GBP 0.8560. UK Treasury Secretary Sunak’s speech at the Tory party conference had no market impact. Amongst other, he signaled extending job support programmes into next year. Commodity-related currencies enjoyed the commodity bonus. USD/CAD tests first support at 1.26. EUR/NOK dives below the psycho 10 mark for the first time since May. The YTD low at 9.90 is next support. The 2020 low follows at 9.82.

Today’s eco calendar couldn’t really inspire, but that will change later this week. Especially the US agenda looks tempting with US services ISM (tomorrow), ADP employment (Wednesday) and payrolls (Friday). The EMU side is less exciting with only outdated retail sales (Wednesday) and Minutes of the previous ECB meeting (Thursday). Speeches by ECB governors, including chief economist Lane, serve as a wildcard. We stick to our view that ECB members over the course of Q4 will start preparing the turn toward policy normalization. Central bank meetings down under will highlight the difference in stance between Australia and New Zealand with the latter expected to pull the trigger on a first rate hike after delaying the move in August over new Covid-cases. The National Bank of Poland meets on Wednesday, with markets since last week’s Minutes and inflation beat (20y high) again betting on hints in the statement that a policy U-turn might arrive as soon as the November meeting when new growth and inflation forecasts are available.

News Headlines

Turkish real yields just got even more negative. September headline inflation accelerated from 19.25% to 19.58% y/y amid quickening energy prices (22.27% vs 20.72% in August). This compares to a central bank policy rate that was cut from 19% to 18% end of September. Core inflation unexpectedly sped up too, from 16.76 to 16.98%. With producer inflation coming in at 43.96% y/y there seem to be more upward price pressures in the pipeline short-term. It was, however, the first decline compared to the month before (45.52%) since May 2020. This may have eased some of the most acute inflation fears in markets, resulting in a fairly stable Turkish lira in the wake of the data release. EUR/TRY hovers unchanged around 10.29.

ECB Vice-President Luis de Guindos said that the recent rise of inflation in the euro zone is not only the result of (temporary) base effects. He said some of the drivers, such as supply bottlenecks and higher energy costs, were having a structural impact “that goes beyond what we were expecting only a few months ago”. This in turn might lead to workers changing perceptions and wage demands, provoking an inflationary wage spiral through second-round effects. De Guindos added that the labour market hasn’t seen such a “sizeable salary increases for the time being” but that they need to pay close attention as negotiations are only just starting.

Daily Pivots: (S1) 1.2599; (P) 1.2669; (R1) 1.2710; More...

USD/CAD's fall from 1.2891 resume by breaking 1.2592 and intraday bias is back on the downside. Such decline is seen as the third leg of the pattern from 1.2947. Deeper fall would be seen to 1.2492 support and possibly below. Overall, with 1.2421 support intact, rise from 1.2005 should still be in progress for another rise through 1.2947 at a later stage. Break of 1.2773 resistance will turn bias back to the upside for retesting 1.2947 high.

In the bigger picture, fall from 1.4667 is seen as the third leg of the corrective pattern from 1.4689 (2016 high). It should have completed after hitting 1.2061 (2017 low) and 50% retracement of 0.9406 to 1.4689 at 1.2048. Sustained break of 38.2% retracement of 1.4667 to 1.2005 at 1.3022 will pave the way to 61.8% retracement at 1.3650 and above. Overall, medium term outlook remains neutral at worst with 1.2048/61 support zone intact.

Daily Pivots: (S1) 149.53; (P) 150.14; (R1) 151.05; More...

GBP/JPY's break of 150.92 minor resistance suggests that it has defended 149.03 key support again. Intraday bias is back on the upside for 152.54 resistance. Firm break there will suggest that correction from 156.05 has completed, and turn near term outlook bullish for retesting this high. On the downside, however, sustained break of 149.03 key support will carry larger bearish implication and target 143.78 fibonacci level.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). As long as 149.03 support holds, such rise would still resume at a later stage. However, sustained break of 149.03 support will indicate rejection by 156.59 (2018 high). Fall from 156.05 would at least be correcting the whole rise from 123.94 (2020 low). Deeper fall would be seen back 38.2% retracement of 123.94 to 156.05 at 143.78 first.

Daily Pivots: (S1) 1.0771; (P) 1.0789; (R1) 1.0807; More....

EUR/CHF's fall from 1.0936 continues today and reaches as low as 1.0751 so far. Intraday bias remains on the downside for retesting 1.0694 low. Decisive break there will resume whole decline from 1.1149. On the upside, above 1.0811 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.0860 resistance holds.

In the bigger picture, medium term outlook remains mixed as EUR/CHF is still failing to get rid of 55 week EMA cleanly. On the upside, break of 1.1149 will resume the whole rise from 1.0505 (2020 low). On the downside, break of 1.0694 will revive some medium term bearishness for 1.0505 and below.

The Australian dollar has started the new trading week in positive territory, continuing the upswing which started on Thursday. Currently, AUD/USD is trading at 0.7283, up 0.33% on the day.

The Aussie fell below the 72 line last week and dropped to its lowest level in a month. However, the currency has rebounded strongly and is close to the 73 level. Last week ended on a positive note for equities. Wall Street received a lift from Merck, which announced a pill to treat Covid. The dollar also lost ground on Friday as US Treasury yields fell slightly. Finally, with the greenback showing some strength lately, we’re seeing some profit-taking which has undermined dollar strength.

RBA expected to maintain policy

With major economies continuing to make progress against Covid-19, inflation has been moving higher. Central banks such as the Fed and BoE have argued that the surge in inflation is transitory, but that stance is looking more difficult to defend, and last week, Fed Chair Powell was forced to acknowledge that high inflation will remain for longer than the Fed had anticipated.

There are increased expectations that central bank policymakers will have to hike rates sooner than later in order to curb inflation, and some hawkish Fed members have urged the central bank to raise rates next year. As for the RBA, it has insisted that it has no plans to raise rates from the current record low of 0.10% before 2024.

On Tuesday, RBA Governor Lowe will provide an update on the economic outlook, but there is really no reason to expect any change in policy. The most recent job numbers showed a sharp loss due to Covid lockdowns, while retail sales have declined for three successive months. Barring the absolutely unexpected, the upcoming policy meeting should be a snoozer for the Australian dollar.

AUD/USD Technical

• There is resistance at 0.7325. Next, there is resistance at 0.7389, protecting the round number of 0.7400
• The pair has support at 0.7184.  Below, there is support at 0.7107

Daily Pivots: (S1) 1.3460; (P) 1.3518; (R1) 1.3602; More...

Intraday bias in GBP/USD remains neutral with focus on 1.6308 support turned resistance. Decisive break there will indicate short term bottoming at 1.3410. Intraday bias will be turned back to the upside for 55 day EMA (now at 1.3745) first. On the downside, break of 1.3410 will target 1.3164 medium term fibonacci level next.

In the bigger picture, fall from 1.4248 is at least a correction to the up trend from 1.1409 (2020 low). Such correction could extend to 38.2% retracement of 1.1409 to 1.4248 at 1.3164 before completion. However, considering the rejection by 1.4376 key resistance (2018 high), sustained trading below 1.3164 will argue that it's indeed a bearish trend reversal and would target 61.8% retracement at 1.2493. Nevertheless, break of 1.3912 resistance will revive medium term bullishness and target 1.4248/4376 resistance zone again.

Daily Pivots: (S1) 1.1568; (P) 1.1588; (R1) 1.1612; More...

EUR/USD is staying in consolidation from 1.1561 temporary low and intraday bias remains neutral first. Upside of recovery should be limited by 1.1682 resistance to bring fall resumption. On the downside, break of 1.1561 will target 1.1289 medium term fibonacci level. Nevertheless, sustained break of 1.1682 will bring stronger rebound back towards 1.1908 resistance.

In the bigger picture, sustained break of 1.1602 will argue that rise from 1.0635 (2020 low) has completed at 1.2348. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289. Note also that rejection by 55 week EMA (1.1830) also carries medium term bearish implication. Firm break of 1.1289 will pave the way to retest 1.0635 low. On the upside, though, break of 1.1908 resistance will revive medium term bullishness and turn focus back to 1.2348 high.

Daily Pivots: (S1) 110.82; (P) 111.16; (R1) 111.40; More...

Intraday bias in USD/JPY stays neutral as consolidation from 112.07 is is progress. Downside of retreat should be contained by 110.44 support to bring another rally. On the upside, above 112.07 will extend larger rise to 61.8% projection of 102.58 to 111.65 from 109.11 at 114.71 next. However, break of 110.44 will dampen the bullish case and turn focus back to 109.11 support.

In the bigger picture, break of 111.71 resistance suggests that the whole corrective decline from 118.65 (2016 high) has completed at 101.18 (2020 low) already. Medium term bullishness is also affirmed as USD/JPY stays well above 55 week EMA (now at 108.60). Sustained trading above 111.71 will affirm this bullish case. Rise from 101.18 could then be resuming whole rally from 98.97 (2016 low) through 118.65. This will now be the preferred case as long as 108.71 support holds.