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Market Brief
Today the forex and risk markets start the London session risk-off with flows into the Japanese yen, Swiss franc and fixed income. The yields had been rising these last few sessions which in turn was reflected in the US dollar catching a bid. Equities markets are turning red for the week though positive flows are still going into the Nikkei225, Nasdaq 100 and ASX indices. The Japanese economy posted a slightly better GDP than expected coming in at 0.5% QoQ. The German DAX and US Dow Jones Industrial Average are around -1.0% for the week so far. Reports from the USA say that the White House administration has requested a relief fund from Congress totalling $20.4bln to help repair damage from Hurricane Ida.
Today continues the Central Bank theme with the Bank of Canada rate decision due at 3pm BST, with expectations that they will keep the bank rate at 0.25%. Market watchers will be monitoring the BoC’s tone towards economic growth and especially their GDP forecasts. The economy hasn’t grown as quick as expected and previous thoughts of the BoC moving ahead of the Fed in monetary policy are diminishing. This is making the Canadian dollar one of the worst performing currency pairs in H2 2021 after it had been the best performing currency pair in H1 2021.
The ActivTrader sentiment indicator shows that increasing bullish sentiment is flowing into the USDCAD which is making looking for a short more appealing for the contrarian traders out there.
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The almost symmetrical recovery since the FOMC meeting in June (red circle) would be possibly unwound if there is a close below 1.2420 which would then mark a break in the bullish market structure. 1.3000 has proven to be tough resistance and technically we’re in a bull trend. A break above the 1.300 with a retest for support confirmation before a continuation higher would be one scenario for the future, but I favour a continuation to the downside on US dollar weakness post the September FOMC meeting.
The weeks focus is still the ECB meeting tomorrow and currently the EURUSD is correcting lower under the daily 200 ema with the 20 and 50 ema’s acting as support.
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Several ECB officials have hinted that the central bank could slow the pace of asset purchases under its Pandemic Emergency Purchase Programme (PEPP) after Eurozone inflation surged to a 10-year high of 3% in August.
With rising inflation one of the tools available to a central bank is to raise interest rates but cutting large scale asset purchases of bonds would also have a similar affect.
