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We continue to view this inflation upswing as largely temporary, said the ECB President Christine Lagarde at the Hearing of the Committee on Economic

We continue to view this inflation upswing as largely temporary, said the ECB President Christine Lagarde at the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament.

Additional quotes:

  • Inflation could prove weaker than foreseen if economic activity were to be affected by a renewed tightening of restrictions.
  • Seeing limited signs of this risk of stronger price pressures so far.
  • Our baseline scenario continues to foresee inflation remaining below our target over the medium term.
  • There are some factors that could lead to stronger price pressures than are currently expected.
  • It is evident that the economic recovery in the euro area is increasingly advanced.
  • The growth outlook continues to be uncertain and heavily dependent on the evolution of the pandemic.
  • We remain entirely committed to preserving these favourable financing conditions.
  • This is necessary for a robust recovery that will restore inflation to its pre-pandemic level.

Market reaction:

The remarks undermined the already weaker shared currency. The EUR/USD pair was last seen trading just below the 1.1700 mark, well within the striking distance of monthly lows touched last week.

Monday's US economic docket highlights the release of Durable Goods Orders data for August. The US Census Bureau will publish the monthly report at 12

US durable goods orders overview

Monday's US economic docket highlights the release of Durable Goods Orders data for August. The US Census Bureau will publish the monthly report at 12:30 GMT and is expected to show that headline orders rose 0.7% during the reported month. Orders excluding transportation items, which tend to have a broader impact, are anticipated to have increased by 0.5% in August.

How could it affect EUR/USD?

As Joseph Trevisani, Senior Analyst at FXStreet explains: “According to Fed Chair Jerome Powell, the FOMC members are agreed that the economy has met the criteria for a reduction in bond purchases to begin. Yet, at the Wednesday meeting, the Fed chose caution rather than action. A strong August Durable Goods number, especially in business spending, will help to reassure the governors that the economy is in full recovery. Durable Goods will likely cast their vote for the taper, higher Treasury rates and a higher dollar.”

Meanwhile, Yohay Elam, FXStreet's own analyst, provided a brief technical outlook: “Euro/dollar is trading above 1.17 and benefiting from upside momentum on the four-hour chart, a positive development. On the other hand, the currency pair still trades below the 50, 100 and 200 Simple Moving Averages.”

Yohay also offered important technical levels to trade the major: “Some resistance awaits at 1.1725, the daily high. It is followed by 1.1745, a line that separated ranges. Further above, 1.1790 and 1.1830 are eyed. Support awaits at 1.17, a swing low from Friday. It is followed by 1.1680, the September low, and 1.1660.”

Key Notes

  •   US Durable Goods Orders August Preview: Retail Sales have led the way

  •   EUR/USD Forecast: Euro set to rise on calm from German elections, Evergrande, data eyed

  •   EUR/USD adds to recent losses and drops below 1.1700, looks to Lagarde

About US durable goods orders

The Durable Goods Orders, released by the US Census Bureau, measures the cost of orders received by manufacturers for durable goods, which means goods planned to last for three years or more, such as motor vehicles and appliances. As those durable products often involve large investments they are sensitive to the US economic situation. The final figure shows the state of US production activity. Generally speaking, a high reading is bullish for the USD.

The sharp move lower in EUR/GBP this morning demonstrates that the dust is still settling after last week?s Bank of England policy meeting. In the vie

The sharp move lower in EUR/GBP this morning demonstrates that the dust is still settling after last week’s Bank of England policy meeting. In the view of economists at Rabobank, the pound could continue to be buffeted by the debate about the possibility of 2022 rate hikes for some time.

Strong likelihood that the uncertainty will persist for some time

“For some forecasters, the takeaway from last week’s meeting is that the MPC could announce a small rate hike as soon as February. This view has clearly encouraged GBP bulls. Others, including ourselves, expect that the UK economy will be too fragile for the Bank to hike rates before 2023. This view suggests there could be plenty of headwinds in store for the pound in the coming months.”

“The initial assessment from Bank staff is that the recent fiscal announcements were likely to be broadly neutral for the growth outlook, as higher spending on health and social care would be funded by an increase in National Insurance Contributions and a rise in dividend tax rates. In our view, these fiscal changes could result in a drop in demand making a rate hike next year unnecessary or worse still a policy mistake. If rates are hiked too early, any initial gains made by the pound would almost certainly be temporary.”

“We have a long standing year end forecast of EUR/GBP 0.84. However, given the fiscal headwinds and our view that the BoE will not be able to hike rates until 2023, this could prove overly optimistic for GBP.”

 

 

Mexico Trade Balance s/a, $ registered at $-3.196B, below expectations ($-1.626B) in August
Mexico Trade Balance, $ below expectations ($-1.064B) in August: Actual ($-3.902B)
In opinion of Quek Ser Leang at UOB Group?s Global Economics & Markets Research, USD/IDR faces some consolidation in the near term, likely between 14,

In opinion of Quek Ser Leang at UOB Group’s Global Economics & Markets Research, USD/IDR faces some consolidation in the near term, likely between 14,220 and 14,280.

Key Quotes

“USD/IDR traded sideways and within relatively narrow ranges last week. Momentum indicators are mostly neutral and further quiet trading would not be surprising. Expected range for this week, 14,220/14,280.”

Julia Goh, Senior Economist at UOB Group, and Economist Loke Siew Ting, reviews the latest BSP event. Key Takeaways ?As expected, Bangko Sentral ng Pi

Julia Goh, Senior Economist at UOB Group, and Economist Loke Siew Ting, reviews the latest BSP event.

Key Takeaways

“As expected, Bangko Sentral ng Pilipinas (BSP) continued to retain its accommodative monetary policy stance…  The central bank kept the overnight reverse repurchase rate unchanged at 2.00% for the seventh straight meeting. Likewise, both the overnight deposit rate and lending rate were also left untouched at 1.50% and 2.50% respectively.”

“In today’s monetary policy statement (MPS), the Monetary Board (MB) acknowledged upside risks to the nation’s inflation outlook over the next few months… BSP projects the nation’s headline inflation to stay above its 2.0%-4.0% target range and hover near 5% levels up to Oct, before tapering off towards the upper bound of its target range from Nov onwards and back within target range in 2022-2023.”

“Regarding the growth prospects, BSP continued to stress that the recovery will still hinge on timely measures to prevent deeper negative effects on the Philippine economy. The acceleration of the government’s vaccination program and a recalibration of existing quarantine protocols will be crucial in upholding economic activity while safeguarding public health and welfare.”

“Also, the latest MPS did not signal any potential rate change in either direction even though the US Fed has effectively issued the much-awaited tapering signal and a more aggressive rate hike timeline starting 2022 (details in link). Hence, we stick to our view that BSP will remain on hold until mid-2022.”

The global recovery has lost momentum, and is facing three key headwinds: the spread of the Delta variant, persistent supply chain bottlenecks, and th

The global recovery has lost momentum, and is facing three key headwinds: the spread of the Delta variant, persistent supply chain bottlenecks, and the unwind of government support. But despite the headwinds, economists at ABN Amro expect growth to remain above trend, with a services recovery that still has a long way to go.

The outlook for the global economy remains strong

“We continue to expect above trend growth to continue well into 2022, and after the current soft patch we expect the recovery to regain some momentum next year.”

“While goods consumption is due for a healthy correction, the services recovery has a long way to go before consumption returns to the pre-pandemic trend. The passing of the Delta wave is likely to give the services sector – which makes up the bulk of private consumption – a renewed boost.” 

“Growth will be helped by higher government investment, with Biden’s infrastructure spending plans in the US likely to start kicking in, and with the Recovery Fund in the eurozone starting to disburse to member states.” 

“While supply bottlenecks have proven more persistent than expected, they are still likely to ease to some extent in 2022, and this should give a new tailwind to the recovery, given the likely significant pent-up investment demand.”

“The normalisation of labour markets should also aid the recovery, and by the end of the year many economies should be back near pre-pandemic levels of employment.”

 

USD/ZAR continues to have the August peak at 15.3950 in its sights while remaining above 14.5682, Axel Rudolph, Senior FICC Technical Analyst at Comme

USD/ZAR continues to have the August peak at 15.3950 in its sights while remaining above 14.5682, Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, reports.

August high is seen at 15.3950

“USD/ZAR’s steep ascent from its current September low at 14.0630 has now taken it above the July high at 14.9972 with the August peak at 15.3950 being next in line. This will be the case while the September 23 low at 14.5682 holds.” 

“Further up the September 2018 and January 2021 highs can be spotted at 15.6645/6945.”

“Minor support below 14.5682 is seen at the 14.4027 June 21 high. Much further down and below the 14.0206/13.9522 support area the June trough can be spotted at 13.4066.”

 

As Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes, the USD/RUB pair slides back towards its current September low at 72.24 below wh

As Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes, the USD/RUB pair slides back towards its current September low at 72.24 below which sits the June trough at 71.55.

Russian rouble looks solid

“If USD/RUB were to be slipped through the current September low at 72.24 on a daily chart closing basis, the June trough at 71.55 would be back in sight, now that last week’s attempt of a rally failed at the current September high at 73.62.”

“The current September high at 73.62 and the six month resistance line at 73.70 would need to be exceeded for the 200-day moving average at 74.09 to be back in play. Above it the August high can be spotted at 74.59. Further resistance can be seen between the 2020-2021 resistance line and the July high at 74.82/75.36.” 

“A daily chart close above 75.36 is needed to reassert a bullish bias for a challenge of resistance seen between the mid-December and January as well as February highs at 76.06/49 to ensue.”

 

USD/TRY?s advance above the previous all-time high at 8.8057 has so far taken it to its new all-time high at 8.8999. Axel Rudolph, Senior FICC Technic

USD/TRY’s advance above the previous all-time high at 8.8057 has so far taken it to its new all-time high at 8.8999. Axel Rudolph, Senior FICC Technical Analyst at Commerzbank , expects the pair to hit the 9.00 level.

2020-2021 resistance line at 8.9009 caps at present

“USD/TRY is currently being capped by the 2020-2021 resistance line at 8.9009 but once bettered, the psychological 9.0000 mark and a daily 0.1 x 3 vertical Point & Figure target at 9.1000 will be targeted next.”

“Minor support below the 8.7267/8.6824 August and September 20 high is seen between the breached four month resistance line and the 55-day moving average at 8.8618/8.5088.” 

“Key support remains to be seen between the June to current September lows at 8.2925/2605. Support below the 8.2605 June low comes in at the 8.2056 May low with further support being seen at the 8.1300 late April low.”

 

The USD/JPY pair shot to the highest level since July 5 during the first half of the European session, with bulls now eyeing a sustained move beyond t
  • USD/JPY attracted some dip-buying on Monday and turned positive for the fourth straight day.
  • The risk-on mood continued weighing on the safe-haven JPY and extended support to the pair.
  • A modest pickup in the USD demand provided an additional boost and remained supportive.

The USD/JPY pair shot to the highest level since July 5 during the first half of the European session, with bulls now eyeing a sustained move beyond the 111.00 mark.

Following an early dip to the 110.55-50 region, the USD/JPY pair caught some fresh bids on the first day of a new trading week and built on last week's solid rebound from the 109.10 support area. This marked the fourth successive day of a positive move and was sponsored by a combination of factors.

The prevalent risk-on mood – as depicted by an extension of a rally in the equity markets – undermined the safe-haven Japanese yen. This, along with a goodish pickup in the US dollar demand, provided and an additional boost to the USD/JPY pair and remained supportive of the ongoing bullish trajectory.

The USD remained well supported by prospects for an early interest rate hike by the Fed. It is worth recalling that the so-called dot plot indicated policymakers' inclination to raise interest rates in 2022. This, to a larger extent, helped offset a modest pullback in the US Treasury bond yields.

Apart from this, the positive momentum could further be attributed to some follow-through technical buying after last week's sustained break through the 110.25-30 supply zone. A subsequent move beyond the previous monthly highs and the 111.00 mark now seems to have set the stage for further gains.

Market participants now look forward to the US economic docket, highlighting the release of Durable Goods Orders data. This, along with scheduled speeches by a slew of influential FOMC members, might influence the USD price dynamics and produce some trading opportunities around the USD/JPY pair.

Technical levels to watch

 

Quek Ser Leang at UOB Group?s Global Economics & Markets Research suggests USD/THB is likely to navigate within the 33.10-33.60 range for the time bei

Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggests USD/THB is likely to navigate within the 33.10-33.60 range for the time being.

Key Quotes

USD/THB popped to a high of 33.60 last week before pulling back sharply. Upward momentum is beginning to wane and this coupled with overbought conditions indicate that USD/THB is unlikely to strengthen much further.”

“For this week, USD/THB is likely to trade between 33.10 and 33.60. Looking ahead, there is room for USD/THB to strengthen further and only a breach of the rising trend-line support (currently at 33.03) would indicate that the current upward pressure has eased.”

The selling pressure around the single currency remains well in place and now drags EUR/USD to fresh lows near 1.1680 on Monday. EUR/USD looks to doll
  • EUR/USD trades on the defensive below the 1.1700 level.
  • German 10-year yields trade closer to -0.20%, last seen in July.
  • ECB’s C.Lagarde speaks later in the European afternoon.

The selling pressure around the single currency remains well in place and now drags EUR/USD to fresh lows near 1.1680 on Monday.

EUR/USD looks to dollar, ECB

EUR/USD loses ground for the second session in a row and re-visits the sub-1.1700 region at the beginning of the week.

The firm note in the greenback keeps putting the pair and the risk-associated galaxy under extra pressure, all against the backdrop of the intense selloff in the global bond markets, in particularly following the FOMC event and the Powell’s press conference last Wednesday.

No impact on the FX space of the German elections on Sunday, which will likely see protracted negotiations between the winner party, the SPD, the Greens and the liberal FDP party in order to form a coalition government.

The single currency derives extra downside pressure from Friday’s lower-than-expected Business Climate in Germany for the month of September, as per the IFO survey. This result adds to previous retracements seen in the flash PMIs and Economic Sentiment, among others, almost confirming the loss of momentum in the economic recovery.

In the domestic docket, the ECB’s M3 Money Supply expanded 7.9% in the year to August and Private Sector Loans rose at an annualized 4.2%. Additionally, Chairwoman C.Lagarde and Board member F.Panetta are due to speak.

Across the pond, Durable Goods Orders will take centre stage followed by the Dallas Fed Manufacturing Index and Fed-speakers.

What to look for around EUR

EUR/USD remains under pressure and puts the 1.1700 level once again to the test at the beginning of the week. The firm sentiment surrounding the dollar is expected to persist for the time being and particularly now that the Committee sees higher rates in 2022 and the QE tapering process kicking in “soon”. In the euro region, the loss of momentum in the recovery, as per some weakness seen in key fundamentals, continues to undermine the mood around the shared currency.

Key events in the euro area this week: ECB’s Lagarde speech (Monday) – ECB Forum in Sintra, Germany’s GfK Consumer Confidence, ECB’s Lagarde speech (Tuesday) – ECB Forum in Sintra, final Consumer Confidence, ECB’s Lagarde speech (Wednesday) – German labour market report, German September flash inflation figures (Thursday) – German Retail Sales, final August PMIs, EMU preliminary inflation figures (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the Delta variant of the coronavirus and pace of the vaccination campaign. Probable political effervescence around the EU Recovery Fund. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is losing 0.18% at 1.1698 and faces the next up barrier at 1.1755 (weekly high Sep.22) seconded by 1.1784 (55-day SMA) and finally 1.1845 (weekly high Sep.14). On the other hand, a break below 1.1683 (monthly low Sep.23) would target 1.1663 (2021 low Aug.20) en route to 1.1602 (monthly low Nov.4 2020).

In its latest statement released on Monday, the People?s Bank of China (PBOC) reiterated that they will make prudent monetary policy flexible, targete

In its latest statement released on Monday, the People’s Bank of China (PBOC) reiterated that they will make prudent monetary policy flexible, targeted and appropriate.

Additional comments

“Will keep liquidity reasonably ample.”

“Will make credit growth more stable.”

“Will safeguard legitimate rights and interests of housing consumers.”

“China's economic recovery not solid, unbalanced.”

“To push real lending rates to further fall.”

“Vow to ensure 'healthy' property market development.”

Market reaction

USD/CNY was last seen changing hands at 6.4583, down 0.06% on a daily basis.

The UK Environment Minister George Eustice said in a statement on Monday that there is no shortage of petrol. He added that the ?most important thing

The UK Environment Minister George Eustice said in a statement on Monday that there is no shortage of petrol.

He added that the “most important thing is for people to buy petrol as usual.”

Eustice said that they “have no plans yet to bring in army to do driving of trucks.”

His comments come as the fuel crisis in the UK aggravates, with the Petrol Retailers Association (PRA) having warned that as many as two-thirds of its membership of nearly 5,500 independent outlets are out of fuel, with the rest of them "partly dry and running out soon". 

Earlier, it was reported that the government is considering suspending competition law to allow oil firms to target fuel deliveries at petrol stations following recent panic buying, per BBC News.

Market reaction

The pound seems to have shrugged off the petrol problem, as GBP/USD advances towards 1.3700 amid the upbeat market mood. The spot is trading at 1.3692, up 0.09% on the day.

USD/TRY finds stiff resistance at $8.90 and recedes from near-record tops, pausing the three-day uptrend this Monday. The Turkish lira crumbled last w
  • USD/TRY sits at record highs after last week’s CBRT surprise rate cut.
  • Price could pull back amid overbought conditions on the daily chart.
  • Impending bull cross suggests buying the dips for USD/TRY traders.

USD/TRY finds stiff resistance at $8.90 and recedes from near-record tops, pausing the three-day uptrend this Monday.

The Turkish lira crumbled last week, falling to the lowest levels ever posted on record after the Central Bank of the Republic of Turkey (CBRT) unexpectedly cut its benchmark interest rate by 100 basis points to 18% on Thursday.

Markets view this surprise as negative, as the unexpected rate cut underscores the Turkish central bank’s fragile credibility, which continues to weigh on the lira. However, the risk-on mood-led broad US dollar weakness is seen saving the day for lira optimists for the time being.

At the time of writing, USD/TRY trades almost unchanged on the day at $8.86, having recorded all-time highs at $8.8968 on Friday.

From a near-term technical perspective, USD/TRY appears to take a breather amid overbought conditions showcased by the daily Relative Strength Index (RSI).

However, any dip in the USD/TRY price could be seen as a good buying opportunity, suggested by an impending bull cross, which if materialized could signal buying resurgence.

The 21-Daily Moving Average (DMA) has cut through the 50-DMA for the upside but traders await confirmation on a daily closing basis.

USD/TRY: Daily chart

On the upside, the 9.00 threshold needs to be cleared to head towards the 9.50 psychological level.

Meanwhile, any retracement could see initial demand emerging at Friday’s low of 8.76. The next downside target is seen at around 8.60, the round number.

The emergence of heavy selling around the shared currency dragged the EUR/GBP cross to one-week lows, around the 0.8530-25 region during the first hal
  • EUR/GBP witnessed aggressive selling on Monday and dropped to one-week lows.
  • Tight German election results prompted some selling around the shared currency.
  • The fuel crisis in the UK could weigh on the sterling and limit losses for the cross.

The emergence of heavy selling around the shared currency dragged the EUR/GBP cross to one-week lows, around the 0.8530-25 region during the first half of the European session.

Following an early uptick to the 0.8575-80 region, the EUR/GBP cross witnessed aggressive selling on Monday and extended last week's retracement slide from the 0.8610-15 region, or monthly tops. The centre-left Social Democrats (SPD) registered a narrow victory over incumbent Chancellor Angela Merkel’s party in a closely contested German election on Sunday. The tightness of the result means that negotiations on coalition-building are likely to be complex and time-consuming, which, in turn, took its toll on the common currency.

Apart from this, a goodish pickup in demand for the British pound turned out to be another factor that contributed to the heavily offered tone surrounding the EUR/GBP cross. That said, increasing signs of the fuel crisis in the United Kingdom might hold the GBP bulls from placing aggressive bets. In fact, the Association of petroleum retailers has said that 50-90% of its members reported having run out of fuel. Apart from this, a goodish pickup in demand for the US dollar might further collaborate to cap gains for the sterling and lend some support to the cross.

Hence, any subsequent slide is more likely to find decent support and remain limited near the key 0.8500 psychological mark amid absent relevant market moving economic releases. Hence, it will be prudent to wait for a sustained break below the mentioned handle before positioning for any further depreciating move. Market participants now look forward to ECB President Christine Lagarde's speech for a fresh impetus. Later during the US session, comments by the Bank of England Governor Andrew Bailey might influence the GBP and also produce some short-term trading opportunities around the EUR/GBP cross.

Technical levels to watch

 

Last week the pound was the second worst performing currency after the yen. The latest developments are creating a more negative combination of weaker

Last week the pound was the second worst performing currency after the yen. The latest developments are creating a more negative combination of weaker growth and higher inflation in the UK which economists at MUFG Bank believe is a bad mix for pound performance. 

UK supply side concerns set to continue

“The recent underperformance of the pound can be partly explained by less favourable market conditions that have turned more risk averse over the last couple of weeks reflecting heightened concerns over downside risks to growth in China and globally.”

“The pound’s failure recently to track higher UK yields could reflect concern that tightening policy so soon into the COVID-19 recovery is an unfavourable development for the UK economy. The BoE is clearly starting to put more weight on dampening upside inflation risks than continuing to support the recovery.”

“Recent economic data has already shown a loss of growth momentum over the summer, and worsening supply side problems strongly suggest that growth could slow further heading into the winter.”

“We expect cable to fall further especially once support at the 1.3600-level is broken.”  

 

In August, EUR/CHF was approaching 1.07, but lately the pair has moved higher and was briefly above 1.09. Although economists at Danske Bank have slig

In August, EUR/CHF was approaching 1.07, but lately the pair has moved higher and was briefly above 1.09. Although economists at Danske Bank have slightly downgraded their forecasts, they still expect to see EUR/CHF at 1.11 in 12 months. 

See: EUR/CHF to head back to the 1.09 mark on high eurozone CPI – ING

Lower US T-yields to lift EUR/CHF

“We have revised down our EUR/CHF forecasts profile slightly but overall we still see a case for the cross moving higher.”

“We still expect US 10-year Treasury yields will move lower over the coming year targeting 2.0% in 12M, which should lift EUR/CHF. We still forecast EUR/CHF will trade at 1.11 in 12M.”

“The key joker for the pair is if global macro becomes so good in Europe that markets start talking about ECB rate hikes. Today, such a scenario is not in play. A setback in risk sentiment is another joker.”

 

The euro has been little moved as widely expected by the release of the results from yesterday?s German election. Complicated talks to form governmen

The euro has been little moved as widely expected by the release of the results from yesterday’s German election. Complicated talks to form government are set to last for several months but the euro is expected to stay unnerved, in the view of strategists at MUFG Bank

The race to succeed Chancellor Angela Merkel has resulted in a fragmented parliament

“The wafer-thin margin of victory for the SPD creates even more uncertainty over the likely formation of the next government and leaves an array of potential coalition options still on the table. Coalitions talks are expected to take weeks and possibly months. The continued uncertainty is one reason why there has been limited euro reaction to the initial election results.” 

“The close results further reinforce the need for political parties to compromise to form the next government. It most likely favours only a modest shift in policy direction in Germany and thereby more limited impact on the performance of the euro.”

The Federal Reserve?s statements suggest that it will reduce the size of its asset purchases from the end of 2021; those from the European Central Ban

The Federal Reserve’s statements suggest that it will reduce the size of its asset purchases from the end of 2021; those from the European Central Bank suggest that it will reduce them in 2022. If, in late 2021 and in 2022, there is a slowdown in growth and significant disinflation then it will be difficult for the Fed and the ECB to justify tapering, analysts at Natixis report.

The fresh COVID-19 wave in the US from summer 2021

“The first obstacle to tapering concerns the US in particular: the rising number of COVID-19 cases due to a wave of the Delta variant, which is weakening the economy: declining production prospects, household confidence, job creation.”

The risk of a growth slowdown in late 2021 and in 2022

“Growth at the end of 2021 and in 2022 may be slowed by the likely reduction in fiscal deficits between 2021 and 2022, the fall in real wages in 2021 and commodity supply bottlenecks, which are holding back growth in several sectors.”

Disinflation, which could be significant between 2021 and 2022

“The central banks are forecasting significant disinflation between 2021 and 2022, but it could even be more pronounced, given the absence of a rise in unit labour costs and a change of the sign of the base effect of commodity prices, which, after having risen significantly between 2020 and 2021, will fall (even if only slightly) between 2021 and 2022.”

“As has been all but announced, especially in the United States, the solution may be a partial and conditional tapering of securities purchases.”

 

USD/CNH now looks to extend the consolidative mood within the 6.4350-6.4880 range in the next weeks, commented FX Strategists at UOB Group. Key Quotes

USD/CNH now looks to extend the consolidative mood within the 6.4350-6.4880 range in the next weeks, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “USD traded between 6.4593 and 6.4730 last Friday, narrower than our expected consolidation range of 6.4500/6.4730. The quiet price actions offer no fresh clues and further consolidation appears likely. Expected range for today, 6.4520/6.4700.”

Next 1-3 weeks: “There is not much to add to our update from last Friday (24 Sep, spot at 6.4610). As highlighted, USD is still in a consolidation phase and could trade between 6.4350 and 6.4880 for a period of time.”

The greenback, when tracked by the US Dollar Index (DXY), starts the week on the same upbeat mood that finished the last one and re-visits the 9240/50
  • DXY picks up pace and adds to Friday’s gains near 93.40.
  • US 10-year yields pushes higher and approaches 1.47%.
  • Fedspeak, Durable Goods Orders, Dallas Fed Index next on tap.

The greenback, when tracked by the US Dollar Index (DXY), starts the week on the same upbeat mood that finished the last one and re-visits the 9240/50 band on Monday.

US Dollar Index looks to data, Fedspeak, yields

The index advances for the second session in a row on Monday and approaches the 93.50 area on the back of higher yields and broad-based softer note in the risk-associated universe.

Indeed, yields of the US 10-year benchmark note pushe higher and gyrate around the 1.47% level, area last traded in late June. In the short-end of the curve, yields of the 2-year note climb to the 0.28% zone, last observed in April 2020.

Furthermore, the renewed and moderate pick-up in US yields follow the hawkish tone from Chief Powell at the latest FOMC event (Wednesday). In the same line, Cleveland Fed L.Mester (2022 voter, hawkish) advocated on Friday for the start of the tapering process in November and finish in mid-2022.

Later in the US data space, Durable Goods Orders for the month of August are due seconded by the Dallas Fed Manufacturing Index. In addition, speeches by NY Fed J.Williams (permanent voter, centrist), FOMC Governor L.Brainard (permanent voter, dovish) and Chicago Fed C.Evans (voter, centrist) will also be iin the limelight throughout the session.

What to look for around USD

The index flirts with recent tops in the 93.40/50 band, always with the attention on higher yields. The improved mood in the buck follows the unexpected hawkish message from Chief Powell while market participants continue to pencil in an interest rate hike by end of 2022. Positive results from US fundamentals coupled with alleviating concerns regarding the progress of the Delta variant should also remain supportive of a stronger dollar in the near/medium term.

Key events in the US this week: Durable Goods Orders (Monday) – Advanced Goods Trade Balance, CB Consumer Confidence, Powell’s Testimony (Tuesday) – Powell’s speech (Wednesday) – Final Q2 GDP, Initial Claims (Thursday) – PCE, Final Manufacturing PMI, ISM Manufacturing, Personal Income/Spending, final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Biden’s multi-trillion plan to support infrastructure and families. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is gaining 0.17% at 93.43 and a break above 93.52 (monthly high Sep.23) would open the door to 93.72 (2021 high Aug.20) and then 94.30 (monthly high Nov.4 2020). On the flip side, the next down barrier emerges at 92.98 (weekly low Sep.23) seconded by 92.73 (55-day SMA) and finally 91.94 (monthly Sep.3).

 

The USD/CAD pair managed to recover over 35 pips from near two-week lows and was last seen hovering near the top end of its daily trading range, aroun
  • A modest pickup in the USD demand assisted USD/CAD to bounce off the 1.2600 neighbourhood.
  • Bullish oil prices continued underpinning the loonie and might keep a lid on any strong move up.
  • Investors eye the US Durable Goods Orders and speeches by FOMC members for a fresh impetus.

The USD/CAD pair managed to recover over 35 pips from near two-week lows and was last seen hovering near the top end of its daily trading range, around mid-1.2600s.

The pair extended its recent retracement slide from the vicinity of the 1.2900 mark and dropped to the 1.2600 neighbourhood during the early part of the trading action on Monday. An extension of the recent bullish run in crude oil prices to the highest level since July continued underpinning the commodity-linked loonie and exerted some pressure on the USD/CAD pair. However, a modest pickup in the US dollar demand helped limit any further losses, rather assisted the pair to attract some dip-buying at lower levels.

Worries about potential risks from the debt crisis at China Evergrande Group resurfaced after a deadline for paying $83.5 million in bond interest passed without any remarks from the company. Apart from this, prospects for an early rate hike by the Fed continued acting as a tailwind for the greenback. It is worth recalling that the Fed's so-called dot plot indicated policymakers' inclination to raise interest rates in 2022. This helped offset a pullback in the US Treasury bond yields and revived the USD demand.

It, however, remains to be seen if the USD/CAD pair is able to capitalize on the move or meet with some fresh supply at higher levels. Market participants now look forward to the US economic docket, highlighting the release of Durable Goods Orders later during the early North American session. Apart from this, the US bond yields and speeches by a slew of influential FOMC members will influence the USD. Traders might further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch

 

The GBP/USD pair shot to fresh daily tops during the early European session, though lacked any follow-through and remained below the 1.3700 mark. The
  • GBP/USD attracted some dip-buying on Monday amid a subdued USD price action.
  • The risk-on mood, retreating US bond yields dented demand for the safe-haven USD.
  • Bets for an early Fed rate hike helped limit the USD slide and capped gains for the pair.

The GBP/USD pair shot to fresh daily tops during the early European session, though lacked any follow-through and remained below the 1.3700 mark.

The pair attracted some dip-buying on the first day of a new trading week and rallied over 35 pips from the daily swing lows, near the 1.3660-55 region. The uptick allowed the GBP/USD pair to recover a part of Friday's losses and was sponsored by a subdued US dollar price action.

The prevalent risk-on mood – as depicted by an extension of the bullish run in the equity markets – was seen as a key factor that dented demand for the safe-haven USD. Apart from this, a modest pullback in the US Treasury bond yields further acted as a headwind for the greenback.

That said, worries about potential risks from the debt crisis at China Evergrande Group and prospects for an early rate hike by the Fed helped limit the USD losses. It is worth recalling that the Fed's so-called dot plot indicated policymakers' inclination to raise interest rates in 2022.

This, in turn, kept a lid on any meaningful gains for the GBP/USD pair, warranting caution for bullish traders. In the absence of any relevant market moving economic releases from the UK, it will be prudent to wait for some follow-through buying before positioning for any further gains.

Market participants now look forward to the US economic docket, highlighting the release of Durable Goods Orders data. This, along with scheduled speeches by a slew of influential FOMC members, will influence the USD price dynamics and provide some trading impetus to the GBP/USD pair.

Later during the US session, traders will further take cues from the Bank of England Governor Andrew Bailey's speech for some meaningful trading opportunities around the GBP/USD pair.

Technical levels to watch

 

European Monetary Union M3 Money Supply (3m) declined to 7.9% in August from previous 8.1%
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