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The USD/CAD is currently ranging within an ascending channel. We could see a dip then a move up.

The POC zone comes around 1.2650 and we could see a move to the upside. However, watch for the FOMC today. If the markets dips to the POC watch for a bounce. Above 1.2890 we should see a bullish move. The target then will be 1.3060. Below 1.2550 watch for 1.2478 and 1.2341 as the price will turn bearish.

Notes/Observations

• Reprieve from China Evergrande debt situation helps risk appetite.
• Focus on FOMC with market expectations that Fed will announce to begin tapering its asset purchases by the end of the year (Note: likely to be short on details about the pace and the composition of tapering).

Asia

• BOJ kept its policy steady (as expected) with IOER unchanged at -0.10% and Yield Control maintained around 0.00%. Outlined its climate response financing operations and details on green lending program.
• China PBoC Monthly Loan Prime Rate Setting kept both 1-year LPR and 5-year LPR unchanged at 3.85% and 4.65% respectively.
• PBoC Open Market Operations (OMO) injected a net CNY90B into the system (prior was CNY100B injection).
• China real estate company Evergrande Unit Hengda stated it would make interest payment for onshore bond due on Sept 23rd [no mention of offshore bond].
• IMF Chief Economist: Following company very closely; China has tools and policy space to prevent situation from becoming system crisis.
• RBA Assistant Gov Bulloc noted that house prices were outside fundamentals; macro prudential rules should be targeted at risks arising from highly indebted borrowers.

Europe

• UK could join US, Mexico, Canada trade pact if its is unable to secure a direct FTA.

Americas

• House of Representatives passed bill to fund government through -Dec 3rd and extend debt ceiling limit through 2022 election. Bill unlikely to pass Senate given GOP opposition.
• Senate Minority Leader McConnell (R-KY) introduced spending bill to fund Govt through Dec 3rd but did not include debt limit provision.
• Treasury Sec Yellen argued that a default on US debt would lead to a historic financial crisis.
• Treasury’s Borrowing Committee said to warn Yellen of debt-limit risks: Committee noted that even if default was avoided, continued negotiations over the debt limit could cause needless volatility, create additional operational expenses for market participants, and do lasting damage to the Treasury market.
• White House stated that the debt limit was not a partisan issue. Sought to want to protect the full faith and credit of the United States, and. would continue to press for bipartisan support for moving forward.

Energy

• Weekly API Crude Oil Inventories: -6.1M v -5.4M prior (Note: crude inventories has been lower in 17 of the past 18 weeks).
• IEA was urging Russia to increase gas supply to Europe, Believed Russia could do more to increase gas availability to Europe and ensure storage was filled to adequate levels in preparation for the coming winter heating season.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +0.70% at 461.90, FTSE +1.13% at 7,059.93, DAX +0.65% at 15,447.95, CAC-40 +1.15% at 6,628.14 , IBEX-35 +0.52% at 8,801.50, FTSE MIB +0.65% at 25,517.00, SMI +0.28% at 11,821.60, S&P 500 Futures +0.56%].
• Market Focal Points/Key Themes: European indices open higher across the board and stayed in the green as the session progressed; all sectors trade in the green with the outperformers including financial and consumer discretionary; laggard sectors include materials and consumer staples; Sulzer launches is offer of medmix shares; couriers under pressure after FedEx cut outlook yesterday; Iliad buys UPC Poland from Liberty Global; Entain rejects approach from DraftKings; focus on rate decision by the FOMC later in the day; earnings expected in the upcoming US session include General Mills and Blackberry.

Equities

• Consumer discretionary: Entain [ENT.UK] +7% (confirms DraftKings' offer). PZ Cussons [PZC.UK] -6% (earnings; trading update).
• Energy: IGas Energy [IGAS.UK] -12% (earnings).
• Healthcare: Oxford Biomedica [OXB.UK] +7% (earnings; investment).
• Industrials: Halma [HLMA.UK] +1% (trading update), Traton [8TRA.DE] +1% (profit warning on chip shortage).

Speakers

• ECB’s Muller (Estonia) stated that ECB should be able to end Pandemic Bond Buying Program (PEPP) in Mar 2022 (as scheduled). To discuss raising conventional QE (e.g. APP program) when PEPP ended. Noted that ECB could not just transfer PEPP flexibility to APP program.
• German Bundesbank Board Member Wuermeling noted that German banking system remained robust but could still see significant credit defaults due to pandemic; not out of the crisis just yet.
• EU Commission Energy Commissioner Kadri stated that was monitoring the surge in energy prices and considering tools to prevent an energy crunch.
• Sweden Central Bank (Riksbank) Dep Gov Ohlsson stated that the inflation trend was more important than monthly readings.
• Germany IFO Institute updated its economic outlook which cut 2021 GDP forecast from 3.3% to 2.5% while raising the 2022 GDP growth forecast from 4.3% to 5.1%.
• BOJ Gov Kuroda post rate decision press conference reiterated its overall assessment that domestic economy remained in a severe state but was picking up as a trend. Reiterated view that uncertainties were high over the economic impact of the pandemic and would not hesitate to add to easing if necessary.
• Russia Foreign Ministry official stated that Russia was not manipulating the gas prices via the Nord Stream 2 pipeline.
• Philippines said to be planning a strategic oil reserve program to ensure supplies.

Currencies/Fixed Income

• USD was steady despite some risk appetite in the session. Focus was on the upcoming FOMC rate decision. Dealers believe updated DOT projections to upward revision to interest-rate outlook. Dealers also believe Fed will announce to begin tapering its asset purchases by the end of the year.
• EUR/USD at 1.1730 at mid-session and well contained within recent ranges.
• GBP/USD probing the key 1.36 support area.
• USD/JPY at 109.50.

Economic data

• (NL) Netherlands Sept Consumer Confidence Index: -5 v -6 prior.
• (NL) Netherlands July Consumer Spending Y/Y: 4.8 v 6.7% prior.
• (DK) Denmark Sept Consumer Confidence Indicator: 8.2 v 4.4 prior.
• (ES) Spain July House transactions Y/Y: 53.5% v 73.5% prior.
• (TR) Turkey Sept Consumer Confidence: 79.7 v 78.2 prior.
• (TW) Taiwan Aug Unemployment Rate: 4.1% v 4.2%e.
• (ZA) South Africa Aug CPI M/M: 0.4% v 0.3%e; Y/Y: 4/9% v 4.9%e (6th straight reading within target band).
• (ZA) South Africa Aug CPI Core M/M: 0.3% v 0.1%e; Y/Y: 3.1% v 3.0%e.
• (PL) Poland Sept Consumer Confidence: -13.0 v -15.0e.
• (IT) Italy July Industrial Sales M/M: 0.9% v 3.1% prior; Y/Y: 19.1% v 28.5% prior.
• (IS) Iceland Aug Wage Index M/M: +0.3% v -0.1% prior; Y/Y: 7.9% v 7.8% prior.

Fixed income Issuance

• (IN) India sold total INR170B vs. INR170B indicated in 3-month, 6-month and 12-month bills.
• (SE) Sweden sold total SEK3.5B vs. SEK3.5B indicated in 2023 and 2045 Bonds.
• (UK) DMO sold £350M in 0.125% inflation-linked 2056 Gilts (UKTi); Real Yield: -2.289% v -1.972% prior; bid-to-cover: 2.12x v 2.17x prior.

Looking Ahead

• (PT) Portugal Debt Agency (IGCP) to hold bond exchange.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (DE) Germany to sell €2.5B in 0% May 2036 Bunds.
• 05:30 (EU) ECB allotment in its quarterly 3-year TLTRO-3 Tender.
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).
• 06:00 (IE) Ireland Aug PPI M/M: No est v 2.4% prior; Y/Y: No est v -2.1% prior.
• 06:00 (CZ) Czech Republic to sell 2032 and 2037 bonds.
• 06:30 (EU) EU Commission to sell combined €4.0B in 3-month and 6-month bills.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (RU) Russia to sell 2025 OFZ Bond auction.
• 07:00 (US) MBA Mortgage Applications w/e Sept 17th: No est v 0.3% prior.
• 07:00 (UK) Weekly PM Question time in House.
• 08:00 (PL) Poland Aug M3 Money Supply M/M: 0.3%e v 1.0% prior; Y/Y: 9.2%e v 8.8% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (7-20 years).
• 10:00 (US) Aug Existing Home Sales: 5.88Me v 5.99M prior.
• 10:00 (EU) Euro Zone Sept Advance Consumer Confidence: -5.9e v -5.3 prior.
• 10:30 (US) Weekly DOE Oil Inventories.
• 12:00 (RU) Russia Q3 Consumer Confidence Index: No est v -18 prior.
• 12:00 (RU) Russia Aug Industrial Production Y/Y: 5.9%e v 6.8% prior.
• 12:00 (RU) Russia Aug PPI M/M: 1.3%e v 2.6% prior; Y/Y: 28.4%e v 28.1% prior.
• 13:00 (US) Treasury to sell 2-year FRN.
• 14:00 (US) FOMC Interest Rate Decision: Expected to leave Interest Rates unchanged beteen 0.00-0.25%; Expected to leave Interest on Reserve Balances Rate (IOER) unchanged at 0.15%.
• 14:30 (US) Fed Chief Powell post rate decision press conference.
• 15:00 (AR) Argentina Aug Trade Balance: No est v $1.5B prior.
• 17:30 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to raise the Selic Target Rate by 100bps to 6.25%.
• 19:00 (AU) Australia Sept Preliminary PMI Manufacturing: No est v 52.0 prior; PMI Services: No est v 42.9 prior; PMI Composite: No est v 43.3 prior.
• 20:00 (KR) South Korea Sept 20 Days Exports Y/Y: No est v 40.9% prior; Imports Y/Y: No est v 52.1% prior.
• 21:00 (CN) China Aug Swift Global Payments (CNY): No est v 2.2% prior.
• 21:30 (KR) Bank of Korea (BOK) to sell KRW1.0T in 3-month Bonds.
• 23:00 (TH) Thailand Central Bank (BOT) to sell THB35B in 2023 Bonds.
• 23:30 (TH) Thailand Aug Customs Trade Balance: $0.9B v $0.2B prior; Exports Y/Y: 15.1%e v 20.3% prior; Imports Y/Y: 39.6%e v 45.9% prior.

All eyes on FOMC meeting

FOMC day finally arrives with markets already being buffeted by a variety of inputs. Although I expect the FOMC to not give too much away on the tapering front, the best we can expect I believe is a signal that they will make a firm decision on whether to start at the November meeting, we could in for a surprise on the latest dot plot. The dot plot, which charts FOMC members’ timelines for rate hikes or cuts could see more members moving hiking expectations into 2022. We may not get a taper tantrum lite from tapering comments, but we could from a more hawkish dot plot. I’ve long given up hope that US bond yields will react materially, but we could see a further extension to the US dollar rally and equities and commodities probably won’t have a good day at the office.

It is a busy day for central banks anyway with the Bank of Japan announcing its latest policy decision this morning. Like Indonesia yesterday, I expect no change from the BOJ, with a new prime minister to be chosen next week and an election to hold in the next couple of months. They may downgrade growth expectations and hint that more stimulus is ready should the economy slow, which should be supportive of Japan equities. Paraguay sneaked in a 0.50% rate hike this morning Asia time, and Brazil this evening, after the FOMC looks set to hike rates by another 1.0%. With Russia also on a hiking path, parts of the EM world could become attractive carry propositions if Mr Powell keeps the dovish hat firmly on. Turkey should be hiking, but that is a quick path to unemployment if you are the central bank governor.

Mainland China returns to work today although Hong Kong markets are on holiday in a game of tag. China has left its one and five-year Loan Prime Rates unchanged at 3.85% and 4.65% respectively as expected. Another RRR cut, probably early in Q4, is my favoured easing path for the PBOC. With one eye on the Evergrande saga, which has captured the world’s attention, the PBOC has injected a chunky liquidity injection today of CNY 120 billion via the 7 and 14-day repos. Whether that is enough to soothe frayed nerves in China remains to be seen.

What has soothed nerves is Reuters reporting that Evergrande’s Hengda Real Estate unit will make coupon payments on onshore bonds that was due tomorrow. That saw an immediate jump in the risk-correlated Australian and New Zealand dollars, and some buying coming into early Asian equity markets. However, the Evergrande story will keep on giving with the Financial Times reporting yesterday that Evergrande issued wealth management products sold to Chinese retail investors were used to plug financial holes in various subsidiaries. Concerns also swirl around its stake in a regional Chinese bank and whether it has been borrowing from itself effectively. The coupon payment story is likely only a temporary reprieve with no signals from the Chinese government over what steps, if any, it will take to assist an orderly wind down or restructuring.

US markets are contending with their own challenges in addition to the FOMC. The House of Representatives passed a vote to extend the US debt ceiling until after next year’s mid-term elections and will vote on a full bill today. It will likely be dead on arrival in the US Senate though, with Mitch McConnell as much as saying so, forcing the process into reconciliation to pass. The tiresome gamesmanship over the debt ceiling from both sides should be another reason for the Fed to stay on the cautious side of things this evening.

Natural gas prices continue to make headlines with European gas prices having climbed by over 400%. Most of the noise is around the 10-20% of gas that producers keep for the spot market and here it seems Asia is winning the bidding war. Gazprom is reluctant to increase export volumes to Europe above contracted amounts, meaning no spot gas. Bemusingly, signals from Russia suggest that a quick approval and certification of the new NordStream2 pipeline could result in an immediate increase. All Europe and Asia, to a lesser extent, can do, is hope for a mild winter at this stage. Europe is paying the price for its naivety in tying energy security to Russia in the hope that it would be a reliable partner. That’s like me turning structurally bullish on cryptocurrencies and starting to call them an investable versus tradeable asset class.

For today, Evergrande has knocked the FOMC meeting into second place in the attention of Asian investors. I expect regional markets to be buffeted by headlines emerging from that situation and the price action after the coupon payment news suggests dip buyers hungrily await in everything if even tenuous positive news arrives.

Oil rallies on API inventories

Oil prices rose overnight in line with the general rebound in commodities seen over the past 24 hours. The return of greater China has seen oil prices continue to rise in Asia today. Oil prices were boosted overnight by a dramatic fall in US API Crude Inventories by 6.108 million barrels. But the continuing rise in gas prices is also a supportive factor that will limit losses going forward. Additionally, Reuters reported overnight that OPEC+ compliance had risen to 116% in August and that the grouping was struggling to pump enough crude to meet demand.

Brent crude rose by 0.60% to USD 74.70 overnight, continuing 0.55% higher in Asia to USD 75.10 a barrel. WTI rose by 0.40% to USD 70.85 and has climbed another 0.60% higher to USD 71.25 a barrel in Asian trading.

Notably, WTI held support at its 50 and 100-day moving average (DMA) support zone between USD 69.25 and USD 69.50 a barrel overnight, a positive technical development. Another large fall by official US Crude Inventories this evening could see WTI test resistance at USD 73.00 and USD 74.00 a barrel.

Brent crude has support near its overnight lows at USD 73.30 a barrel, followed by its 50 and 100-DMAs which have converged at USD 72.00 a barrel. A rally through resistance at USD 76.00 sets up Brent crude for further gains targeting USD 78.00 a barrel.

Given the variety of supportive factors in the energy space, notably sky-high natural gas prices, which increase oil’s appeal as a substitute, and robust physical demand, dips in prices right now are likely to be short-lived.

Gold continues to find haven bids

Gold prices rose once again overnight as investors continued to hedge a variety of potential market risks this week including Evergrande contagion concerns, the FOMC, the US debt ceiling and the US spending bill. Gold climbed 0.57% higher to USD 1774.50, edging up to USD 1776.65 an ounce in Asia.

Notably, the intra-day rally in New York overnight failed ahead of formidable technical resistance at USD 1780.00 an ounce. That now becomes an even more important pivot level that could trigger renewed algorithmic buying and see gold retest USD 1810.00 an ounce if overcome. Gold has support at USD 1767.00 and then the double bottom near USD 1740.00 an ounce.

Despite gold’s return from the dead, thanks mostly to Evergrande fears, I remain sceptical about the longevity of the rally. A hawkish FOMC dot plot release tonight, or any signs that China is moving to resolve the Evergrande saga will likely see gold’s rally this week reversed in its entirety.

US dollar drifting ahead of FOMC

Currency markets are steadfastly refusing to get drawn into the noise surrounding the US debt ceiling and the ongoing Evergrande saga, remaining laser-focused on tonight’s FOMC meeting. The dollar index closed barely changed at 93.20 overnight, having probed the downside intraday. Some modest strength in Asia has seen the dollar index creep higher to 93.27.

That has left the major currencies drifting, content to range trade ahead of the FOMC. USD/JPY has drifted 20 points higher to 109.50 after the BOJ left policy unchanged but downgraded its export outlook, but otherwise remains confined between 109.00 and 110.00. EUR/USD and GBP/USD have edged slightly lower from their New York closes to 1.1720 and 1.3650. USD/CAD continues to consolidate its recent gains, hovering at 1.2795 with a commodity rebound offset by political nerves and the FOMC outcome.

AUD/USD and NZD/USD remain anchored near the bottom of their recent ranges at 0.7240 and 0.7010, with the Melbourne earthquake this morning having little to no impact. Both antipodeans remain vulnerable to further drops in risk sentiment. Of the two, NZD/USD looks the most vulnerable. A loss of 0.6980 signalling a potential unwind of the RBNZ inspired rally and could see NZD/USD fall to near 0.6800 if the global fear mood darkens.

Asian currencies also look to be on FOMC watch after USD/CNY trading resumed today leaving USD/CNY opened higher today at 6.4755, only to edge lower to 4.4740 in narrow trading. That is still somewhat higher than today’s PBOC fixing at 6.4693, suggesting markets are nervous about Evergrande-driven currency weakness. However, the overall stability of both the onshore and offshore yuan’s today has dampened any nerves in Asia FX, leaving USD/ASEAN barely changed.

China equities bashed on return to work

Wall Street had a very noisy and choppy session overnight, buffeted by an impending FOMC, Evergrande, slowing growth prospects, Covid-19, the US debt ceiling, and the future of the Democrat’s $3.5 trillion spending bill; chose your crisis. When the dust settled, a few day traders were probably licking wounds, but the main indexes closed not too far from where they finished the day before. The S&P 500 closed just 0.08% lower, the Nasdaq rose 0.22% in a tech-safety play, and the Dow Jones edged 0.14% lower. US futures are almost unchanged in Asia, erring to the heavy side.

The return of Mainland China markets hasn’t been a happy one. Despite a CNY 100 bio liquidity injection from the PBOC, and news that a local Evergrande unit will make a local bond coupon payment tomorrow, equity markets have headed south. Evergrande is due to also make an offshore coupon payment tomorrow and there has been no word on whether this will happen, and that could be keeping local equities subdued. The Shanghai Composite has fallen by 1.90% today as Evergrande contagion fears take centre stage. The CSI 300 is 1.10% lower while Hong Kong markets are closed for a public holiday.

The negative day for China has spilled over to regional markets. The Nikkei 225 is 0.50% lower after the BOJ left policy unchanged. After two days of holidays, South Korea remains closed, but Taipei is playing catchup after a return from holidays, the TAIEX slumping by 2.20%. Singapore is 0.60% lower while Kuala Lumpur is down 0.40% while Jakarta is bucking the trend, helped by rebounding commodity and energy prices, rising 0.90%.

Rebounds in iron ore and copper, along with surging energy prices has lifted Australian markets by mid-session, after a slow start. The Evergrande local unit coupon payment news has also lifted sentiment, although Australian markets, seizing on any snippet of good news could be getting ahead of themselves, as no news has emerged on whether an offshore coupon, also due tomorrow, will be paid. Nevertheless, Australian markets are now solidly in the green, the ASX 200 jumping higher by 0.70%, and the All Ordinaries rallying 0.90%.

Given the neutral finish by Wall Street, and the negative tone pervading Asia, and with the FOMC to come later today, European stocks are likely to adopt a cautious stance this afternoon, remaining vulnerable to negative headlines emanating from China. The increasing noise surrounding the gas price rally is also likely to dampen spirits in today’s session.

• Fed's policy commentary, dot plot, inflation forecasts could move markets.
• Stocks, gold may see a big drop on hawkish surprise.
• GBPUSD set for volatile few sessions.
• Oil to stay elevated if EIA data confirms crude inventories drop.

Global markets are waiting with bated breath for what's to come out of the FOMC meeting. Any tapering hints offered by the world's most influential central bank tonight could dictate how markets fare for the rest of 2021 and beyond.

The benchmark dollar index (DXY) is holding around the top of its recent range, while US stock futures are attempting to pare recent losses. Asian stocks are mixed with the Shanghai Composite index in the green after returning from holidays, despite persistent concerns surrounding China Evergrande.

Considering the recent price action in various assets, with the dollar staying elevated and stocks lower, markets appear to have already priced in some of the Fed's unwinding of its asset purchases. In fact, it may be the tapering pace which is more important than the exact start date.

Certainly, the Fed's inflation projections through 2024 as well as the closely watched updated dot plot also have the potential to move markets. Persistently elevated consumer prices would suggest that the Fed has to act to stay ahead, which implies a rate hike sooner rather than later.

After the weak jobs report and lower-than-expected inflation print, the surprise would be if the Fed makes known its tapering timeline at this meeting.

This hawkish shift would jolt markets, potentially pushing Treasury yields and the dollar past the upper bound of recent ranges, while gold and equities would selloff hunting down the next levels of support.

On the other hand, should the FOMC become more wary of the waning US economic recovery, that could force policymakers to continue its slow policy move towards tapering. Such dovish signals could unwind some of the greenback's gains while offering relief to stock markets.

GBP/USD set to lay bare Fed and BOE policy gap

GBPUSD could be hit with a quick one-two this week, with the Bank of England slated to announce its policy decision tomorrow, shortly after the FOMC meeting. Cable is set to react to policy signals from either side of the pond, with one-week implied volatility already at its highest since May.

If the BOE pulls back from making a hawkish tilt, that's likely to leave GBPUSD more susceptible to the dollar's reaction after the Fed's announcement and Chair Powell's press conference. The blow that potentially sends cable to its July floor below the 1.36 mark might come in the form of Fed officials coming out en masse to reinforce a hawkish message in their respective scheduled speeches on Friday, following a less optimistic BOE meeting that's devoid of hawkish clues.

Tightening conditions could help oil defy dollar gains

Oil benchmarks have surged in the wake of another substantial drawdown in US crude inventories. Prices will remain elevated, even in the face of any post-FOMC gains for the dollar, if official government data confirms a seventh consecutive drop in stockpiles.

Tightening conditions in oil markets should create a supportive environment for the bulls. However, should concerns over the waning global economic recovery creep back in, then oil benchmarks might be open to unwinding some of the 5% advance they've garnered so far this month.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.1724
Prev Close: 1.1725
% chg. over the last day: +0.01%

Germany's house price index fell slightly in August despite the ECB flooding the economy with cheap money. But the situation is likely to start to change soon. The ECB will also start to reduce its asset purchase program to prevent the acceleration of inflation, which promises to be even higher amid Europe's energy problems.

Trading recommendations

Support levels: 1.1704, 1.1620
Resistance levels: 1.1772, 1.1802, 1.1835, 1.1894, 1.1934, 1.1969

From the technical point of view, the general trend of the EUR/USD currency pair is bullish. The price is trading near the priority change level. The MACD indicator has become inactive. Most likely, the situation will not change much until the Fed meeting today. Under such market conditions, buy deals can be considered after the breakout of the local downtrend line. This is where buyers show initiative. It is best to look for sell trades throughout the day, from the resistance zone near the moving average or after the breakdown of priority change level.

Alternative scenario: if the price breaks down through the 1.1704 support level and fixes below, the mid-term uptrend will likely be broken.

News feed for 2021.09.22:

• US Existing Homes Sales (m/m) at 17:00 (GMT+3);
• US FOMC Economic Projections at 21:00 (GMT+3);
• US FOMC Meeting Minutes at 21:00 (GMT+3);
• US Fed Interest Rate Decision at 21:00 (GMT+3);
• US FOMC Press Conference at 21:30 (GMT+3).

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.3645
Prev Close: 1.3659
% chg. over the last day: +0.10%

The most serious labor shortage in the British labor market has been caused by the fact that employers are trying to hire low-paid workers, while the number of vacancies in other areas is 10% lower than pre-pandemic levels. Interest payments on the UK government debt hit a record high after rising inflation.

Trading recommendations

Support levels: 1.3629, 1.3614, 1.3525
Resistance levels: 1.3701, 1.3769, 1.3812, 1.3886, 1.3935, 1.4002

On the hourly time frame, the GBP/USD trend changed to bearish. The GBP/USD currency pair is under sellers' pressure now, but there are signs that the sell-off is slowing down. Ahead of the FOMC meeting, the price is trading in a small corridor. Under such market conditions, it is better to look for sell trades from the resistance levels after the price gains a foothold below. Buy deals should be considered only intraday and only with short targets after the price exits the balance upwards.

Alternative scenario: if the price breaks out through the 1.3812 resistance level and consolidates above, the bullish scenario will likely resume.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 109.38
Prev Close: 109.21
% chg. over the last day: -0.16%

The Bank of Japan kept its negative interest rates and asset purchase targets unchanged amid pressure on the economy related to Covid and the upcoming prime minister elections. The central bank also released more details about its green lending program planned for December.

Trading recommendations

Support levels: 109.18, 108.65
Resistance levels: 109.52, 109.82, 110.09, 110.40, 110.66, 110.95

The main trend of the USD/JPY currency pair is bearish. Due to the fact that the Bank of Japan did not cut its easing program, the Japanese Yen lost some of its positions. As a result, USD/JPY increased at the opening of trading today. The MACD indicator is in the negative zone, but there are weak signs of buying. Under such market conditions, traders should look for sell positions from the resistance level near the moving average. Only intraday buy positions from the support levels should be considered, where there is an initiative of buyers.

Alternative scenario: if the price rises above 110.09, the uptrend is likely to resume.

News feed for 2021.09.22:

• BOJ Monetary Policy Statement at 05:00 (GMT+3);
• BOJ Press Conference at 06:00 (GMT+3);
• BoJ Interest Rate Decision at 06:04 (GMT+3).

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.2824
Prev Close: 1.2811
% chg. over the last day: -0.10%

The Canadian dollar is a commodity currency, so the USD/CAD currency pair is highly dependent on the dynamics of the dollar index and oil prices. Neither the dollar index nor oil showed any dynamics yesterday. As a result, the price of USD/CAD is trading flat. Crude Oil Inventories are expected today, which may trigger the movement on the currency pair. According to the election results, Canadian Prime Minister Justin Trudeau will remain in power but will not get the majority in Parliament, which he strongly hoped for.

Trading recommendations

Support levels: 1.2726, 1.2646, 1.2583, 1.2518, 1.2425
Resistance levels: 1.2812, 1.2891, 1.2951

From the technical point of view, the situation is uncertain, but there is a slight dominance of upward movement. The MACD indicator is inactive. The MACD indicator has become inactive too. Under such market conditions, it is better to trade within the local trend, which is obviously bullish. It is best to look for buy trades from the support levels near the moving average. There are no optimal entry points for sell positions now.

Alternative scenario: if the price breaks down through the 1.2646 support level and fixes below, the uptrend will likely be broken.

News feed for 2021.09.22:

• US Crude Oil Inventories (w/w) at 17:30 (GMT+3).

Ifo lowered Germany growth forecast for 2021 sharply from 3.3% to 2.5%. But 2022 growth forecast was upgraded by 0.8% to 5.1%.

"The strong recovery from the coronavirus crisis, originally expected for the summer, is further postponed," Ifo chief economist Timo Wollmershaeuser said.

"Industrial production is currently shrinking as a result of supply bottlenecks for important intermediate goods. At the same time, service providers are recovering strongly from the coronavirus crisis."

• Chinese stocks mixed after trading resumes as Evergrande says it will meet debt payment
• Dollar holds firm ahead of Fed decision; will Powell rock the boat?
• BoJ keeps policy unchanged, yen slips on better mood, euro and pound lag

Cautious rebound underway amid Evergrande relief

Equities were mostly recovering on Wednesday as market nerves were somewhat calmed after China’s troubled property giant, Evergrande, told investors it will meet the debt payment due on Thursday for domestic bondholders. However, the company has not clarified whether it has sufficient funds to also pay the interest on dollar denominated bonds that are due the same day.

Nevertheless, signs that Evergrande is not completely cash-strapped provided some relief for the markets that have been caught in the debt fallout for days now.

A relatively calm resumption of trading in China after a long holiday weekend also helped soothe the anxiety. The blue-chip CSI 300 index ended the day down 0.7% but the SSE Composite index closed up 0.4%. Other Asian stock markets were mixed too, with Japan’s Nikkei 225 index finishing lower after the Bank of Japan sounded slightly more downbeat on the outlook at its policy meeting today.

US stock futures headed higher, however, despite a lacklustre session on Tuesday when only the Nasdaq Composite managed to close in positive territory, while European bourses were extending their rebound today.

Powell and dot plot in focus, dollar firm

But with worries about Evergrande likely to stay on hold until tomorrow, all attention will be centred on the Fed for the rest of the day. The US central bank is widely expected to signal that the time to begin withdrawing some of the massive pandemic stimulus is very near following months of taper talk by Fed officials.

The flagging of a reduction in asset purchases itself won’t be market moving but investors will be wary about Chair Powell attaching conditions to giving the green light for tapering at one of the remaining meetings of the year. Powell could, for example, say he would like to see at least another strong jobs report, which would not make a November taper announcement a done deal.

However, the real highlight of today’s meeting is likely to be the updated dot plot chart that could reveal a significant hawkish shift if the majority of FOMC members forecast a rate hike in 2022 versus 2023 in the previous dot plot.

Treasury yields and the US dollar were steady in mid-morning European trading, with the greenback’s index against a basket of currencies edging marginally higher. Expectations of a more hawkish Fed have been keeping the dollar supported even as risk sentiment has improved.

The Japanese yen came under pressure, however, from the further easing of the Evergrande turmoil and as the Bank of Japan reinforced its dovish policy outlook.

The mood music could easily change if Powell is too optimistic in his press conference as that would spark fears of a quick exit from QE and an earlier rate hike.

Subdued tone in FX market

All the caution around the Fed and Evergrande is likely capping the bounce back in risk-sensitive currencies. The Australian and New Zealand dollars were up modestly on Wednesday, having reversed back down yesterday. Even the loonie was struggling, climbing just 0.1% after paring most of Tuesday’s gains made on the back of Prime Minister Trudeau’s election victory.

The euro was flat, being led entirely by the US dollar lately, although concerns about the possible impact from a slowing Chinese economy on European exporters could also be weighing on the euro.

The pound was another underperformer, sliding 0.2% versus the greenback, amid growing doubts about the UK economic outlook. Warnings that the UK could face severe power and food shortages in the winter are having a dampening effect on sterling. Should those risks begin to materialize, the Bank of England could halt plans to normalize policy. But for now, the BoE will probably take further steps at its meeting tomorrow to wind down its bond purchases and possibly signal a rate hike in the first half of 2022.