Next 24 hours: Will things head south on Wednesday?
Today’s report: UK Budget and Bank of Canada Decision
Risk markets are still holding up well into the mid-week. US equities pushed to yet another record high on Tuesday, and the US Dollar remains under pressure with some exceptions.
Wake-up call
- Growth downgrade
- UK budget
- Rate differential
- inflation data
- policy decision
- trade deficit
- Stocks vulnerable
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- Bubble Timing Entices Again in the Age of Tesla, J. Authers, Bloomberg (October 27, 2021)
- Can Seaweed Save the World from Livestock Emissions?, K. Banville, Financial Times (October 26, 2021)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
The market has been looking for a higher low since topping out in 2021 up at 1.2350. Ideally, setbacks continue to be well supported above 1.1500 on a weekly close basis in favour of the next major upside extension back through 1.2350 and towards a retest of the 2018 high at 1.2555 further up. Only a weekly close below 1.1500 would force a rethink.EURUSD – fundamental overview
The Euro was down again on Tuesday, this after the German government downgraded growth. Key standouts on today’s calendar include German confidence reads, Eurozone money supply, US durable goods, US trade, and the Bank of Canada policy decision.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market is in a consolidation phase in the aftermath of the run to fresh 2021 and multi-month highs. At this stage, additional setbacks should be limited to the 1.3200 area ahead of the next major upside extension towards a retest and break of critical resistance in the form of the 2018 high.GBPUSD – fundamental overview
UK CBI retail sales data was strong on Tuesday, which helped the Pound outperform. We also continue to see hawkish BOE rate pricing as inflationary pressures rise. It's also UK budget day. The Treasury has already pe-announced more than a dozen measures, including a rise in the minimum wage, an end to the public sector pay-freeze and about Gbp 31 billion of public spending on health care, skills, transport and border security. Key standouts on today’s calendar include German confidence reads, Eurozone money supply, US durable goods, US trade, and the Bank of Canada policy decision.USDJPY – technical overview
The longer-term trend is bearish despite the recent run higher. Look for additional upside to be limited, with scope for a topside failure and bearish resumption back down towards the 100.00 area. It would take a clear break back above 114.55 to negate the outlook.USDJPY – fundamental overview
The widening rate gap between the US and Japan, and ongoing record highs in US equities have been behind most of this latest weakness in the Yen. Key standouts on today’s calendar include German confidence reads, Eurozone money supply, US durable goods, US trade, and the Bank of Canada policy decision.AUDUSD – technical overview
The Australian Dollar has been in the process of a healthy consolidation following the impressive run towards a retest of the 2018 high earlier this year. At this stage, there are signs of the market wanting to turn back up and any setbacks should be well supported down into the 0.7200 area. Look for a weekly close above 0.7500 to strengthen the outlook and force a shift in the structure.AUDUSD – fundamental overview
The Australian Dollar has found more bids on Wednesday, this after CPI data came in on the whole above forecast. This has bolstered RBA rate hike bets. Aussie is also benefitting from record high US equities and in demand commodities. Key standouts on today’s calendar include German confidence reads, Eurozone money supply, US durable goods, US trade, and the Bank of Canada policy decision.USDCAD – technical overview
Finally signs of a major bottom in the works after a severe decline from the 2020 high. A recent weekly close back above 1.2500 encourages the constructive outlook and opens the door for a push back towards next critical resistance in the 1.3000 area. Any setbacks should be well supported into the 1.2200s.USDCAD – fundamental overview
We've been seeing some profit taking on Canadian Dollar long positions in recent sessions. This price action has been mostly chalked up to positioning ahead of today's Bank of Canada decision. But overall, there continues to be quite a bit of demand for the Loonie on surging oil, solid risk appetite and broad based US Dollar selling. No change in rates expected today. But we should see bond buying cut in half, with four rate hikes priced in 2022. Key standouts on today’s calendar include German confidence reads, Eurozone money supply, US durable goods, US trade, and the Bank of Canada policy decision.NZDUSD – technical overview
The market has entered a period of consolidation after running up to a yearly and multi-month high. Back above the April high at 0.7317 would be required to force a shift in the structure.NZDUSD – fundamental overview
The New Zealand Dollar has been trading with a mixed tone. Support has come from demand for risk assets, though we are seeing offers after the record New Zealand trade deficit and a sharp downward revision to business confidence reads. Key standouts on today’s calendar include German confidence reads, Eurozone money supply, US durable goods, US trade, and the Bank of Canada policy decision.US SPX 500 – technical overview
Longer-term technical studies are looking quite exhausted and the market is showing signs of wanting to roll over after racing to another record high. Look for rallies to be well capped ahead of 4600, with a break back below 4353 to strengthen the outlook.US SPX 500 – fundamental overview
We're trading just off fresh record highs, and yet, with so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for sustainable runs to the topside on easy money policy incentives and government stimulus, should no longer be as enticing to investors. Meanwhile, ongoing worry associated with coronavirus fallout and risk of rising inflation should weigh more heavily on investor sentiment in Q4 2021.GOLD (SPOT) – technical overview
The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs and an acceleration beyond the next major psychological barrier at 2000. Setbacks should now be well supported above 1600.GOLD (SPOT) – fundamental overview
The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, and coronavirus fallout. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.