• Michael Moran, Senior Currency Strategist at ACY


• 16.11.2021 12:30 pm
#stocks

Loonie, AUD, GBP Outperform; US 10-Year Bond Yield Rebounds

Summary: The Euro (EUR/USD) tumbled 0.51% to finish at a fresh 2021 low at 1.1380 (1.1450 Friday) as dovish rhetoric from ECB officials continued to weigh on the shared currency. This in turn pushed the DXY, (Dollar Index) to an overnight and 16-month peak at 95.58, settling at 95.45 in early Asian trade. The Greenback was also supported by a rebound in US treasury bond yields with the benchmark 10-year note up 5 basis points to 1.61%. Two-year US rates rose to 0.52% (0.51%). In contrast to the Euro, hawkish speak from Bank of England Governor Andrew Bailey, lifted the British Pound (GBP/USD) 0.48% to 1.3425 (1.3365). Speaking before the UK Parliament Treasury Select Committee, Bailey said that future BOE meetings on policy are now “in play” for a rate rise. The USD/CAD pair slid to 1.2510 from 1.2550. Bank of Canada Governor Tiff Macklem said that QE is no longer needed while admitting that the economic slack in the Canada’s economy is still not absorbed. Resource currencies were also higher. The Australian Dollar (AUD/USD) finished at 0.7350, up 0.48%. Higher US yields lifted the Greenback against the Asian and Emerging Market currencies. The USD/SGD pair was up 0.15% to 1.3540 while USD/CNH (Dollar-Offshore Chinese Yuan) settled at 6.3835 from 6.3800 yesterday.
Data released yesterday saw China’s Retail Sales (y/y) climb 4.9% in October from 4.4% the previous month. Chinese Annual Industrial Production was up 3.5%, beating estimates at 3.0%, and a previous 3.1%. China’s Unemployment Rate was unchanged at 4.9%, while Foreign Direct Investment slipped to 17.8% from a previous 19.6%. Japan’s Revised Industrial Production (October m/m) matched estimates and a previous -5.4%. Canada’s Manufacturing Sales rose to 1.0% in October from 0.7% in September but missed expectations for a 1.1% rise. US Empire State Manufacturing Index climbed to 30.9 from 19.8. beating median expectations at 22.1.

• EUR/USD – slip-sliding away, the shared currency remained soft. Against the overall stronger Greenback, the Euro slid to 1.1380 at the New York close, down 0.51%. On Friday the Euro was trading at 1.1448. ECB officials led by ECB President Christine Lagarde continue to push back calls for tighter policy.
• GBP/USD – the British currency bounced back against the US Dollar and its other rivals supported by the hawkish remarks from BOE Governor Bailey. In contrast to the ECB, BOE officials continue to express uneasiness over the rise in inflation.
• USD/CAD – After soaring to a monthly high just above the 1.2600 area, the US Dollar slid back to 1.2510 (1.2580 on Friday). BOC Governor Tiff Macklem said that QE is no longer needed which lifted the Loonie against the Greenback.
• AUD/USD – The Aussie benefitted from the rally in the resource currencies, up 0.31% against the Greenback at 0.7350. Overnight low traded for the AUD/USD pair was at 0.7321. The RBA meet on policy today (11.30 am Sydney). Governor Philip Lowe speaks later at 1.30 pm Sydney.

On the Lookout: Today’s big event is the release of the US Retail Sales report for October (12.30 am Sydney). Median forecasts are for a month-on-month rise of 1.1% (ACY -Finlogix) from September’s 0.7%. Prior to the US Retail Sales, the economic calendar kicks off with the release of the RBA’s latest Meeting Minutes (11.30 am Sydney). RBA Governor Lowe speaks later in the day (1.30 pm Sydney). Japan releases its Tertiary Industry Index for September (f/c 0.9% from a previous -1.7%). The UK kick off European data with UK Average Earnings Index (f/c 5.6% from 8.3% - ACY Finlogix). UK September Unemployment Rate (f/c 4.4% from 4.5%), UK Claimant Count Change for October (f/c 39,200 from a previous -51,100). The Eurozone sees French October Final CPI (y/y f/c 2.6% from 2.2% - ACY Finlogix), Italian Final October Inflation Rate (y/y f/c 2.9% from 2.5% - ACY Finlogix), Eurozone GDP (Q2 f/c 2.2% from 2.1%; y/y f/c 3.7% from 14.2% - ACY Finlogix). Canada releases its Preliminary October PPI (m/m no f/c, previous was 1%; y/y – no f/c, previous was 14.9%) and October Housing Starts (f/c 257,500 from 251,200).  The US rounds up today’s economic data releases with its US October Retail Sales (m/m f/c 1.1% from 0.7% -ACY FInlogix), US Core Retail Sales (ex-autos) are forecast at 0.8% from a previous 0.8% - ACY Finlogix). US October Industrial Production (m/m 0.7 % from -1.3%, y/y no f/c, previous was 4.6% - ACY Finlogix).

Trading Perspective: The Dollar settled with mixed results after the DXY, which measures the value of the Greenback against a basket of 6 major currencies hit a peak at 95.55, not seen since July 2020.

Overnight the USD/DXY maintained its bid tone and settled at 95.50. A strong rise in the US Retail Sales report tonight could see further Dollar strength. Median expectations are for a rise of 1.1% in October from a September’s 0.7%. There is a lot of hype built into the forecast of this number. The risk for me is a disappointment. A rise of 1.1% could see further corrective downside USD moves. Lower than 1.1% will see further US Dollar falls. Watch for the US Core Sales data as well. Speculative Dollar bets continue to grow which is a risk to the Dollar’s sharp rise. A downward correction would in fact be healthy for a more medium- term uptrend.
Yesterday, the US 10-year bond yield settled at 1.61%, up 5 basis points from 1.56%, 3-week highs.
Tonight’s Retail Sales will also move the US bond yields. Tin helmets on, this is the week’s highlight in terms of economic data.

• EUR/USD – The Euro continues to trade heavy, against the Greenback and other rivals. Overnight the EUR/USD pair traded to 1.1378, overnight and July 2020 lows. The shared currency has been hit by the combination of broad-based US Dollar strength and a dovish ECB. Christine Lagarde, the ECB President pushed back on calls for tighter policy despite inflation already twice its 2% target. Immediate support for today lies at 1.1375 followed by 1.1345. Immediate resistance can be found at 1.1410 and 1.1440 and 1.1470. Look for consolidation in a likely range of 1.1370-1.1470. Don’t want to get caught short here.
• USD/CAD – On the other side of the spectrum, the Canadian Loonie has outperformed, settling at 1.2510, down 0.13%. On Friday, the USD/CAD pair settled at 1.2585 after hitting a peak at 1.2596. Immediate support on the day lies at 1.2500 (overnight low 1.2501). The next support level is found at 1.2480 and then 1.2450. Immediate resistance can be found at 1.2540 and 1.2570. Look for further choppy trade today between 1.2480-1.2580. Just trade the range on this puppy today.
• AUD/USD – The Aussie Battler rallied to 0.7350 from 0.7290 on Friday. Much of the Batter’s strength was derived from the rally in resource currencies. Immediate resistance on the Aussie today lies at 0.7375 (overnight high 0.7371) followed by 0.7410. Immediate support can be found at 0.7320 and 0.7290. A break below 0.7290 could see 0.7250 and 0.7220. On the topside a break above 0.7410 would be needed to see the Aussie back toward 0.75 cents. Highly unlikely with the weaker Asian and EM currencies. Look for consolidation with the Battler trading a likely 0.7320-0.7390 range today. Another trade the range shag currency for today.
• GBP/USD – The British Pound put in a sterling performance against the Greenback, up 0.48%. Sterling was also up against the Euro and other FX pairs. Hawkish comments from BOE Governor Philip Bailey were supportive of GBP/USD. GBP/USD closed at 1.3425. Immediate resistance lies at 1.3450 (overnight high 1.3449). The next resistance level is found at 1.3480. Immediate support can be found at 1.3400 (overnight low 1.3403) and 1.3380, and 1.3350. The UK releases key Employment data today. Expectations are for an improvement. If the data disappoints, GBP/USD will suffer. This currency was known as “Cable” in the old days, a reference to the transatlantic cable that enabled faster communications between London and New York. Soft UK Employment data could see Cable slide and tumble lower. Likely range 1.3370-1.3470. Prefer to sell rallies.

(Source: Finlogix.com)

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