Specs in Wind Down Mode as Multiple Uncertainties Reign

A week that encapsulated a market in wind down mode and preoccupied with the risk of hawkish FOMC meeting on December 15 and the rising threat of another virus-driven market disruption.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The weekly COT update is taking break and will return January 4.

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, December 14. A week that encapsulated a market preoccupied with the risk of hawkish FOMC meeting on December 15 and the rising threat of another virus-driven market disruption. Responding to these developments stock markets weakened, the dollar rose and bond yields drifted lower. Commodities traded lower as well with broad weakness seen across all sectors.


Ahead of last Wednesday’s FOMC meeting, and raised concerns the Federal Reserve would deliver a hawkish tilt, money managers opted to cut further their exposure across the five metals contracts. The selling was led by gold and silver while the net-short in palladium rose to a record high at 3,209 lots. Additional selling in HG copper reduced the net long to just 12k lots, an 18-month low.

In energy, the combined WTI and Brent crude oil long continued to be reduced, and following two months of almost continued selling the net length has seen a 38% reduction to 400k lots, a 13-month low. The latest change primarily driven by a 14.7k lots reduction in the WTI long driven by equal measures of long liquidation and fresh short selling.

The agriculture sector speculative length received a 41k lots boost to 948k lots with net buying of corn, sugar and cocoa more than offsetting selling in soybean oil and Chicago wheat, the latter seeing a return to a net short for the sixth time this year.


In forex, the focus among speculators was for a second week primarily geared towards reducing exposure, both long and short, thereby potentially reducing the signal value. Overall, the combined dollar long against ten IMM currency futures and the Dollar index was reduced for a second week, but this time only by 2% to $22.7 billion. Flows were mixed with selling of EUR, GBP and NZD being more than offset by demand for CHF, JPY and MXN.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Yearend Risk Reduction Despite Underlying Strength

 The COT reports published weekly by the US CFTC highlight futures positions and changes made by hedge funds across commodities, forex and financials during the latest reporting week to last Tuesday, December 7. A week that saw stocks trading higher on optimism the omicron variant wouldn’t derail global growth. Treasury yields and the dollar rose while the commodity sector received a fresh bid following its worst slump in more than a year. With yearend and the low liquidity season upon us, speculators went against the direction of the markets and instead opted to reduce exposure in both commodities and the dollar.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, December 7. A week that saw the biggest one-day rally in US stocks since March on optimism the omicron variant wouldn’t derail global growth. Treasury yields and the dollar rose while the commodity sector received a fresh bid following its worst slump in more than a year.

However, looking across all the asset classes covered in this update, we find position squaring becoming a major theme. December is normally a time of year when traders reduce exposure as liquidity starts to dry up as trading books are being reduced ahead of the holidays and yearend. With this in mind the net changes may not give much insights with regards to the short-term direction of the market. Examples being the reductions in dollar longs and commodities, both occurring in a week where both rose.


Net selling of commodities continued for a second week, but at 117k lots the reduction slowed compared with the previous week where the 364k lots reduction was the biggest one-week reduction since the first round of Covid-19 panic hit the market in February last year. Despite strong gains with 20 out of 24 futures contracts trading higher, the general theme as mentioned was one of risk reduction with gross longs seeing a 124k lots reduction while the gross short was reduced by 8k lots.

Only a handful of contracts saw net buying led by corn (17.2k lots), soybeans (4.5k) and WTI (2.4k) while selling was led by natural gas (-37k), sugar (-22.8k), Brent (-13k) and gold (-11.6k).


The most interesting of the changes last week was the 13.1k lots reduction in the Brent crude oil long to a fresh 13-month low at 154k lots. The contract has now seen nonstop selling for the past nine weeks, and despite rallying by 9% last week, the recovery from the omicron washout and break above the 200-day moving average was not enough to persuade speculators to change their defensive stance. A behavior which is in stark contrast to the overall market belief in higher prices into 2022.

Commodity related updates from our daily Market Quick Take available here

Crude Oil

Crude oil (OILUKFEB22 & OILUSJAN22) trades near a three-week high as the market continues to view current omicron worries as short term concerns and mounting speculation that China, the world’s biggest buyer of crude oil, will start adding fiscal stimulus in early 2022 in order to stabilise the economy. Both Brent and WTI are challenging their 21-day moving averages with a break above potentially adding more technical momentum. Speculators meanwhile reduced Brent crude oil longs in the week to December 9 for a ninth, and nine weeks of non-stop reductions have seen the net long drop to a 13-month low. A behavior which is in stark contrast to the overall market belief in higher prices into 2022. Focus turning to monthly oil market reports from OPEC today and IEA tomorrow.


Gold (XAUUSD) remains stuck below its 200-day moving average at $1794 with focus this week on Wednesday’s FOMC meeting, and how they will respond to inflation rising at the fastest pace since the 1980’s. The market is currently pricing in three rate hikes next year with the first one due around June. Countering the negative price impact of a potential more aggressive US central bank, the rapid spreading of the omicron virus is also receiving some attention given its potential negative growth impact.

Industrial metals

Industrial metals have started the week on a firmer footing with iron ore jumping 6% on raised expectations that China will move to increase stimulus next year to support the economy. Following the end of a three-day annual Central Economic Work Conference, the party signaled a clear change in focus away from growth towards ensuring stability. They also vowed to front load policies to halt the recent slide.

Natural Gas

Surging EU gas prices ahead of the European Council meeting on December 16. Apart from having to deal with Covid-19 and the Russian threat on its eastern borders, the council is also set to decide whether investments in gas and nuclear energy should be labelled climate friendly. The design of the EU green investment classification system is closely watched by investors worldwide and could potentially attract billions of euros in private finance to help the green transition, especially given the need to reduce the usage of coal, the biggest polluter.


In forex, the speculative flow was skewed towards dollar sales, primarily driven by short covering in EUR, JPY and CAD. Just one week after hitting an 18-month high on omicron worries and heightened Fed tightening focus, the overall dollar long against ten IMM currency futures and the Dollar index was reduced by 16% to $23.3 billion.

As can be seen in the table below, the overall focus was primarily on reducing exposure which helps to explain that the dollar length was reduced in a week where the greenback rose. The 4.6 billion dollar reduction was primarily driven by a 5.1 billion dollar equivalent broad reduction in gross short positions led by JPY ($1.9 bn) and EUR. Other major changes was the MXN net short which reached a four-year high at 64k lots or the equivalent of $1.5 billion.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

2022 Global Economic Outlook: Covid-19, Structural Inflation, Monetary Tightening Challenge Global Outlook

Explainer video: Scope Ratings introduces its 2022 Global Sovereign Outlook

Download Scope’s 2022 Sovereign Outlook (report).

Entering 2022, new variants of Covid-19, elevated inflation, and withdrawal of fiscal and monetary support present risk for the robustness of recovery. GDP is seen, nevertheless, continuing to grow above trend over 2022 of 3.5% in the US, 4.4% in the euro area, 3.6% in Japan and 4.6% for the UK, even if, in most cases, normalising to a degree from elevated early-recovery growth of 2021. China is seen growing nearer trend of 5%.

Amid an uneven recovery, we see momentary slowdown over Q4 2021 and Q1 2022 across many economies, if not in some cases temporary output contraction, as countries of Europe reintroduce generally lighter restrictions on basis of renewed rise in Covid-19 cases, including those associated with a new Omicron variant. But we see economic rebound regathering traction by the spring of 2022.

As expected, full economic normalisation has remained vulnerable to renewed introduction of restrictions as transmissible virus variants challenge public-health systems, though we see severity of virus risk for economic recovery continuing to moderate with time as governments adopt more targeted responses, virus becomes more transmissible but less lethal, and businesses and people adapt ways of doing business. Nevertheless, risk to the 2022 outlook appears skewed on the downside.

More persistent inflation, even as it begins to moderate, supports increasing monetary policy divergence

Inflationary pressure is likely to remain more persistent than central bank projections, running above pre-crisis averages even after price changes begin to moderate by next year. This is likely to compel a continued divergence of monetary policy within the globe’s core economies, with associated risk of crystallisation of latent debt and financial-bubble risk as central banks pull back.

This is especially true as regards the UK and the US, where inflation might continue testing 2% mandates, although much less the case for Japan of course, with the euro area somewhere in between with inflation potentially remaining under 2% over the long run.

By end-2022, policy rates of leading central banks are expected to similarly diverge: remaining on hold with respect to the ECB and the Bank of Japan but with rate hikes next year from the Bank of England and Federal Reserve. The ECB is seen halting the Pandemic Emergency Purchase Programme (PEPP) next year but adapting PEPP and/or other asset-purchases facilities to retain room for manoeuvre and smoothen transition in markets.

Higher inflation holds both positive and negative implications for sovereign credit ratings

Higher and more persistent inflation holds both positive and negative credit implications as far as sovereign ratings are concerned. Somewhat higher trend inflation supports higher nominal economic growth, helping reduce public debt ratios via seigniorage, and curtails historical deflation risk of the euro area and Japan. However, rising interest rates push up debt-servicing costs especially for governments carrying heavy debt loads and running budget deficits. Emerging economies, with weakening currencies and subject to capital outflows, are particularly at risk.

Substantive accommodation from central banks has cushioned sovereign credit ratings over this crisis, so any scenario of much more persistent inflation limiting room for monetary-policy manoeuvre is a risk affecting credit outlooks. Bounds in central bank capacity to impede market sell-off due to high inflation compromising monetary space may expose latent risk associated with debt accrued in past years.

Monetary innovation during this crisis has supported credit outlooks

As many central banks tighten monetary policy amid policy divergence, peer central banks that might otherwise prefer looser financial conditions may see themselves compelled to likewise remove some accommodation, otherwise risking currency depreciation. At the same time, with governments dealing with record levels of debt and central banks owning large segments of this debt, “fiscal dominance” may coerce moderation in speed of policy normalisation.

Monetary innovation over this crisis such as flexibility made available in ECB asset purchases supports resilience of sovereign borrowers longer run, assuming such innovations were available for re-deployment in future crises.

Emerging market vulnerabilities entering 2022, while ESG risks becoming increasingly substantive

Emerging market vulnerabilities are a theme entering 2022, amid G4 central bank tapering, geopolitical risk, and a slowdown of China’s economy. Debate heats up furthermore during 2022 around adaptation of fiscal frameworks for a post-crisis age, with potentially far-reaching implications as far as sovereign risk. Environmental, social and governance (ESG) risks are becoming increasingly significant – presenting opportunities and challenges for ratings.

Sovereign borrowers with a Stable Outlook make up presently over 90% of Scope Ratings’ publicly rated sovereign issuers, indicating comparatively lesser likelihood of ratings changes next year as compared with during 2021, although economic risks could present upside and downside ratings risk. Only one country is currently on Negative Outlook: Turkey (rated a sub-investment-grade B).

For a look at all of today’s economic events, check out our economic calendar.

Giacomo Barisone is Managing Director of Sovereign and Public Sector ratings at Scope Ratings GmbH.


Specs Exit Commodities on Omicron and Fed Worries

Futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 30. A week that encapsulated the markets very nervous reaction to the Omicron virus news as well as Jerome Powell’s increased focus on combatting inflation. While global stocks and US long end yields dropped, a 7% correction in the Bloomberg commodity index helped trigger the biggest and most widespread hedge fund exodus since February 2020.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 30. The reporting week encapsulated the markets very nervous reaction to the Omicron virus news as well as Jerome Powell confirming inflation is no longer being transitory. His comments to the Senate banking committee raised expectations for faster tapering with the first full 0.25% rate hike now priced in for July next year.

The US yield curve flattened considerably with virus related safe-haven demand driving down the yield on 10-year US treasury notes by 22 basis point. Global stocks slumped with the VIX jumping 8%. Hardest hit, however was the commodity sector after the Bloomberg commodity index slumped by 7%, thereby triggering the biggest and most widespread hedge fund exodus since February 2020.


Hedge funds responded to heightened growth and demand concerns related to the omicron virus, and the potential faster pace of US tapering, by cutting their net long across 24 major commodity futures by 17% to a 15-month low at 1.8 million lots. This the biggest one-week reduction since the first round of Covid-19 panic in February last year was triggered by net selling of all but three livestock contracts.


Hardest hit was the energy sector where renewed demand concerns sent the prices of WTI and Brent down by more than 15%. In response to this, hedge funds accelerated their pace of futures selling with the combined net long slumping by 90k lots to a one-year low at 425k lots. The loss of momentum following the late October peak has driven an eight-week exodus out of oil contracts, culminating last week, and during this time the net length has seen a 35% or 224k lots reduction. Potentially setting the market up for a strong speculative driven recovery once the technical and fundamental outlook turns more friendly.

Latest: Crude oil (OILUKFEB22 & OILUSJAN21) trades higher following its longest stretch of weekly declines since 2018. Today’s rise apart from a general positive risk sentiment in Asia has been supported by Saudi Arabia’s decision to hike their official selling prices (OSP) to Asia and US next month. Thereby signaling confidence demand will be strong enough to absorb last week’s OPEC+ production increase at a time when mobility is challenged by the omicron virus. For now, both WTI and Brent continue to find resistance at their 200-day moving averages, currently at $69.50 and$72.88 respectively. 


Gold was net sold for a second week as speculators continued to reduce exposure following the failed breakout attempt above $1830. With Fed chair Powell signaling a change in focus from job creation to fighting inflation, sentiment took another knock, thereby driving a 13.7k lots reduction to a four-week low at 105k lots. Industrial metals also suffered with the net long in HG copper slumping by one-third to a three-month low at 13.4k lots. Copper’s rangebound trading behavior since July has sapped hedge funds involvement with the current net length a far cry from the 92k record peak seen this time last year.

LatestGold (XAUUSD) received a small bid on Friday following mixed US data, but overall, it continues to lack the momentum needed to challenge an area of resistance just above $1790 where both the 50- and 200-day moving averages meet. Focus on Friday’s US CPI data with the gold market struggling to respond to rising inflation as it could speed up rate hike expectations thereby putting upward pressure on real yields which are inverse correlated to gold’s performance.  A full 25 basis point rate hike has now been priced in for July and the short-term direction will likely be determined by the ebb and flow of future rate hike expectations.


The whole sector with the exception of livestock took a major hit, just one week after funds had increased bullish bets on grains and softs by the most in 15 months. Both sectors suffered setbacks of more than 5% with recent highflyers like wheat and cotton taking big hits. As mentioned, selling was broad and led by corn, soybeans, sugar and cocoa, with the latter together with palladium being the only two contracts where speculators hold an outright short position.

This week the grain market will be focusing on weather developments in Australia and its potential impact on the wheat harvest, as well as the monthly World Agriculture Supply & Demand report (WASDE) from the USDA.


In forex, speculators reacted to renewed virus concerns by increasing bullish dollar bets against ten IMM currency futures and the Dollar Index to an 18-month high at $27.9 billion. Speculators were buyers of JPY (18.4k lots or $2 billion equivalent) but sellers of everything else, including euros (6.8k) and the two commodity currencies of AUD (16.9k) and CAD (10.9k). These changes resulting in the aggregate dollar long rising by $2.3 billion.

In terms of extended positioning, a euro short at 23k lots was last seen in March 2020, the GBP short at 39k lots was a two-year high while the 60k lots MXN short was the highest since March 2017.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Europe Opens With the Risk ON Mode

Futures start the new week on the front foot, with the SP500 being above crucial support on the 4555 points.

DAX is trying to draw a right shoulder of the iH&S formation.

USDJPY is defending the crucial support on the 112.8.

AUDNZD is escaping from the wedge to the upside, giving hope for another bullish wave.

GBPUSD is bouncing off the 38,2% Fibo and the lower line of the flag, in theory, that’s a good place for a proper buy signal.

EURPLN continues to drop after the false breakout above the 4.64.

The Mexican peso turned around the weakness it experienced at the end of last week and starts the new week with gains.

For a look at all of today’s economic events, check out our economic calendar.

Crucial Supports Under Pressure

Many instruments approach the end of this week on crucial support and/or resistances. I guess the next week will be full of some juicy movements on many assets.

Gold is still suffering, trying to defend mid-term dynamic support.

Silver is trying to defend the most important horizontal level this year, 22.2 USD/z.

SP500 goes down aiming for the long-term up trendline.

DAX with eyes on the 14200 points – as on Silver, the most important support this year.

USDCHF continues the drop after the false breakout from the symmetric triangle pattern.

EURUSD tries to catch some breath and aims slightly higher.

EURPLN reverses after the intervention from the Polish Central Bank and creates a false breakout pattern.

Mexican Peso with a possible inverse head and shoulders pattern on both pairs: with USD and EUR.

For a look at all of today’s economic events, check out our economic calendar.

Traders Were Hoping for a Stronger Bounce I Guess…

So far, the recovery from Friday’s carnage is, let’s say, pretty mild. The same mild as apparently, the symptoms from the new coronavirus strain are. That information was about to drive today’s reversal but as you can see, traders are not encouraged to buy the dip at this point.

Gold is defending the mid-term up trendline.

SP500 bounced during the Asian session but the European one does not start well.

DAX is giving back almost all gains from the Asian session.

USDJPY continues the downswing after the breakout of the mid-term up trendline.

EURJPY drops after breaking crucial horizontal support.

AUDNZD continues a very technical movement by creating a wedge finishing the correction on the 38,2% Fibonacci.

USDCHF is trading lower after the false breakout from the symmetric triangle.

The Mexican Peso continues the weakening to USD and EUR despite quite a good opening after the weekend.

For a look at all of today’s economic events, check out our economic calendar.

Risk Off Is Back. Indices and EM Currencies Drop. Safe Havens Surge

Shocking night and morning for the vast majority of stock bulls. Indices are collapsing and the new strain of the virus is apparently to blame.

In this situation, safe-haven assets like gold for example are gaining traction. Gold is aiming higher after breaking the neckline of a small inverse head and shoulders pattern.

Yen is also gaining, USDJPY is currently performing an attack on the mid-term up trendline.

EURJPY is testing crucial long-term horizontal support on the psychological level of 128.

USDCHF is dropping after the false breakout from the symmetric triangle pattern.

EURUSD is trying a small bullish reversal to test the major horizontal resistance.

USDMXN advances higher after the breakout of an important horizontal resistance.

EURMXN continues the rise after the price escapes from a beautiful wedge pattern. A price action classic!

For a look at all of today’s economic events, check out our economic calendar.

Gold and Silver Drop. The Same Happens With EM Currencies

Gold is in a correction mode aiming to test the 1836 USD/oz as a crucial support.

Silver also dropped but here the price is still inside the flag formation.

The DAX bounced off an important horizontal support. Covid fears in Europe have accelerated.

The EURNZD is defending an important horizontal support with a head and shoulders pattern. The buy signal is still not here, we need to see the breakout of the neckline first.

The EURUSD is struggling to defend the 61.8% Fibonacci, especially after the price failed to stay above the psychological barrier of 1.14.

The EURPLN went vertical after the price broke from the ascending triangle to the upside.

The USDMXN could do the same as the EURPLN, the price is testing the upper line of the triangle as we speak.

The EURMXN is defending a crucial support inside of the giant wedge pattern. Soon we should see a decisive movement here.

For a look at all of today’s economic events, check out our economic calendar.

Commodity Currencies Explained (Part I)

Let’s start by defining what could be called a commodity currency (or commodity pair).

Generally, a commodity currency represents a currency from a country or geographical zone that produces specific commodities which will account for most of its exports.

Some examples of currencies which could be considered as commodity currencies are presented in the following table:

Currencies Top Material Exports
Argentine peso (ARS) Soybean meal ($8.81B), corn ($6.19B), delivery trucks ($3.83B), soybeans ($3.47B), soybean oil ($3.38B), bran ($292M), other vegetable residues and waste ($232M), and ground nut oil ($131M)
Australian dollar (AUD) Iron ore ($67.5B), coal briquettes ($51.5B), petroleum gas ($34.1B), gold ($25.4B), aluminium oxide ($5.6B), sheep and goat meat ($3.07B), and wool ($2.26B)
Brazilian real (BRL) Soybeans ($26.1B), crude petroleum ($24.3B), iron ore ($23B), corn ($7.39B), sulfate chemical wood pulp ($7.35B), poultry meat ($6.55B), frozen bovine meat ($5.67B) and raw sugar ($5.33B)
Canadian dollar (CAD) Crude petroleum ($67.8B), cars ($40.9B), gold ($14.6B), refined Petroleum ($12.3B), vehicle parts ($10.8B), sawn wood ($6.35B), raw aluminium ($5.45B), potassic fertilizers ($5.27B), rapeseed ($3.23B), and rapeseed oil ($2.6B)
Indian rupee (INR) Refined petroleum ($39.2B), diamonds ($22.5B), packaged medicaments ($15.8B), jewellery ($14.1B), cars ($7.15B), Rice ($6.9B), Crustaceans ($4.67B), and Non-Retail Pure Cotton Yarn ($2.86B)
Indonesian rupiah (IDR) Coal briquettes ($20.3B), palm oil ($15.3B), petroleum gas ($8.32B), cars ($4.52B), gold ($4.01B), lignite ($2.91B), stearic acid ($2.76B), uncoated paper ($2.37B), and coconut oil ($1.9B)
Malaysian ringgit (MYR) Integrated circuits ($63B), refined petroleum ($17.8B), petroleum gas ($11.5B), semiconductor devices ($9.65B), palm oil ($8.91B), rubber apparel ($4.37B), other vegetable oils ($1B), copper powder ($873M), asphalt mixtures ($417M), and platinum clad metals ($127M)
Mexican peso (MXN) Cars ($53.1B), computers ($32.4B), vehicle parts ($31.2B), delivery trucks ($26.9B), crude petroleum ($26.6B), tractors ($10.7B), beer ($5.07B), tropical fruits ($3.6B), and railway freight cars ($3.57B)
New Zealand dollar (NZD) Concentrated milk ($5.73B), sheep and goat meat ($2.62B), rough wood ($2.31B), butter ($2.29B), frozen bovine meat ($2.09B), casein ($613M), and honey ($237M)
Nigerian naira (NGN) Crude Petroleum ($46B), petroleum gas ($7.78B), scrap vessels ($2.26B), flexible metal tubing ($2.1B), and cocoa beans ($715M)
Peruvian nuevo sol (PEN) Copper ore ($12.2B), gold ($6.76B), refined petroleum ($2.21B), zinc ore ($1.65B), and refined copper ($1.62B), animal meal and pellets ($1.54B), lead ore ($1.01B), fish oil ($434M), and buckwheat ($139M)
Russian ruble (RUB) Crude petroleum ($123B), refined petroleum ($66.2B), petroleum gas ($26.3B), coal briquettes ($17.6B), wheat ($8.14B), semi-finished iron ($6.99B), coal tar oil ($4.49B), raw nickel ($4.03B), and nitrogenous fertilizers ($3.05B)
South African rand (ZAR) Gold ($16.8B), platinum ($9.62B), cars ($7.61B), iron ore ($6.73B), and coal briquettes ($5.05B), manganese ore ($3.16B), chromium ore ($1.92B), titanium ore ($583M), and niobium, tantalum, vanadium, and zirconium ore ($480M)
Swiss franc (CHF) Gold ($59B), packaged medicaments ($46.2B), blood, antisera, vaccines, toxins, and cultures ($32.9B), base metal watches ($13.6B), jewellery ($10.9B), precious metal watches ($7.32B), and hydrazine or hydroxylamine derivatives ($501M)
US dollar (USD) Refined petroleum ($84.9B), crude petroleum ($61.9B), cars ($56.9B), integrated circuits ($41.4B), vehicle parts ($41.2B), medical instruments ($29.5B), gas turbines ($28.1B), aircraft parts ($16.3B), and orthopedic appliances ($12.1B)
Vietnamese dong (VND) Broadcasting equipment ($42.3B), telephones ($18.2B), integrated circuits ($15.5B), textile footwear ($10.6B), and leather footwear ($6.43B), coconuts, Brazil nuts, and cashews ($3.16B), fuel wood ($2.05B), cement ($1.39B), metal-clad products ($1.37B), and cinnamon ($175M)
West African CFA franc (XOF) Gold ($11.66B), cocoa beans ($3.84B), refined petroleum ($2.64B), rubber ($1.08B), raw cotton ($1.04B), and crude petroleum ($941M), cocoa paste ($795M), other oily seeds ($407M), Phosphoric Acid ($346M), coconuts, Brazil nuts, and cashews ($280M), ground nuts ($192M), zinc ore ($173M), raw zinc ($155M), electricity ($141M), cocoa shells ($115M), calcium phosphates ($95.7M), radioactive chemicals ($59.6M), rough wood ($59.5M), raw copper ($49.4M), Petroleum Gas ($42.5M), non-fillet frozen fish ($356.1M), other vegetable residues ($25.4M), and aluminium ore ($3.17M)

Data: The Observatory of Economic Complexity (OEC)

(Bold: products which the country/economic area was the world’s biggest exporter in 2019)

For active trading purposes, the ones highlighted in yellow would be characterised as freely floating and more liquid currencies. Thus, they would also be more accessible and less costly (with lower fees) to trade.

For hedging purposes, the others would present some advantages to the commercialisation of their associated natural resources, even though they would rather be considered more exotic currencies.


Here is a representation of some key commodity currencies presented in the above table on a weekly timeframe against the US dollar (reference currency):

Graphical user interface, chart, applicationDescription automatically generated

Each chart was represented within 2-standard deviation Bollinger Bands based on a 20-period simple moving average (in orange), a 50-period simple moving average (blue curve), a 200-period simple moving average (the black curve) and in the pane below is a 14-period relative strength index (in blue) to which was applied a 9-period simple moving average (red curve).

All those charts are displayed over a 2-year historical period.

In the next article I’ll focus on highlighting some correlations which may exist between key natural resources and the currencies in which they are usually traded.

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Thank you.

For a look at all of today’s economic events, check out our economic calendar.

Sebastien Bischeri
Oil & Gas Trading Strategist

* * * * *

The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data’s accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits’ employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


CPI Shocker Lifted the Greenback, which now needs to Take a Breath

The dollar rallied, and new highs for the year were recorded against the euro and sterling. The dovish tapering announcement by the Fed on November 3 was completely unwound as the December 2022 Fed funds futures returned to the high-yield mark of 66 bp ahead of the weekend.

The two-year yield rose from about 39 bp at the start of the last week to almost 55 bp. The volatility of the bond market (the equivalent of the VIX for the S&P 500) surged back to the year’s high (above 78%). Ultimately, the idea that R-star, the real short-term interest rate when the US economy is at full capacity and inflation stable, has continued to trend lower will likely cap nominal rates. Equities wobbled, and the S&P 500 snapped an eight-day advance, and the NASDAQ’s 11-day rally stalled. US equities stabilized and posted modest gains in the past two sessions.

The rise in price pressures requires the Federal Reserve to be more flexible to address a range of possible outcomes. The pace of the tapering is the main constraint on policy. The FOMC statement committed the Fed to reduce the bond-buying by $15 bln in November and December. While it anticipated that the pace would continue, it reserved the right to adjust the rate.

This is likely to be the focus in the run-up to the mid-December meeting. To finish QE in March, as St. Louis Fed’s Bullard, a noted hawk, has argued, the Fed would need to double its pace of tapering to $30 bln a month starting in January. What is at stake is when the Fed’s rate hike cycle can begin, not the terminal rate, which is expected to be below 2%.

Dollar Index

The CPI saw the Dollar Index surge to convincingly surpass the (38.2%) retracement target of the decline from the March 2020 high (~103) to the January 6 low (~89.20). That retracement (~94.55) had been penetrated briefly before, but it did not stick. This time, the Dollar Index rose to new highs for the year, slightly above 95.25. The next retracement (50%) is found a little above 96.00, and the (61.8%) objective is almost 97.75. The momentum indicators suggest a high is not yet in place, but the move since the mid-week CPI shocker, above the upper Bollinger Band (~95.00) warns against chasing it. That said, initial support is likely in the 94.60-94.75 area.


The euro was driven below $1.15 after the US CPI report and failed to resurface above this previous floor, which now acts as resistance. A low near $1.1435 was recorded ahead of the weekend. Neither the MACD nor Slow Stochastic is over-extended, but, as we saw with the Dollar Index, the exchange rate is outside the Bollinger Band (slightly below $1.1465) and settled below it for the third consecutive session ahead of the weekend. There is little chart support until the $1.1290-$1.1300 area is approached. Moreover, if the euro has carved out some kind of topping pattern, the risk may extend toward $1.10.

Japanese Yen

From around mid-September through mid-October, the dollar broke out of the old JPY109-JPY111 range rate to reach JPY114.70 on October 20. It consolidated at lower levels and approached JPY112.70 on November 9. The jump in the US CPI reported the following day lifted the greenback to JPY114.00, and it reached JPY114.30 before the weekend.

We often experience the dollar-yen exchange rate as a pair often rangebound. We had anticipated a JPY113-JPY115 range and would allow about a half a yen range or so violation. The MACD has flatlined, while the Slow Stochastic has turned higher. Although the fit is not perfect, we still look at US yields for directional cues.

British Pound

Sterling had been turned lower on November 4 from $1.37 by the BOE, who caught the market leaning too far over its skis, arguably encouraged to do so by official rhetoric. Its attempt to recover was stalled near $1.36, and the US inflation jump set it to new lows for the year. The low ahead of the weekend was slightly below $1.3355.

The MACD is entering oversold territory, while the Slow Stochastic, which leveled off, seems to be slipping into over-extended territory as well. After closing for two sessions below the lower Bollinger Band, it finished the week back above it (~$1.3355). A close above $1.3400 would suggest a consolidative phase lies ahead. Last December, sterling record lows $1.3135-$1.3185, and the risk is for this area to be tested.

Canadian Dollar

Since the US CPI surprise, the Canadian dollar has been the weakest of the major currencies, falling around 0.75% against the greenback. It was the third consecutive weekly decline for the Loonie, which was preceded by a five-week advance. The US dollar posted an outside up day in the middle of last week on the back of the CPI news. It rallied from slightly below CAD1.2390 to a little above CAD1.25.

On Thursday, when US and Canadian banks were closed for holidays, the dollar rose to almost CAD1.2600 and made a marginal new high ahead of the weekend. This met the (50%) retracement of the US dollar’s decline since the CAD1.29 level was approached a couple of days before the September 22 FOMC meeting. The Slow Stochastic is over-extended, though the MACD has more scope to run. Here too, the market moved quickly, and the greenback settled the past two sessions above the Bollinger Band (~CAD1.2555). The CAD1.2480 area may offer initial support.

Australian Dollar

The Australian dollar recorded the low for the year on August 20, near $0.7100. It recovered into early September (~$0.7480) before being turned back to $0.7170 by the end of the month. The Aussie launched another advance last month that carried to around $0.7555 and the 200-day moving average. It has come under new pressure this month and fell to nearly $0.7275 ahead of the weekend, meeting the (61.8%) retracement target of the overall rally since August 20.

It closed on a firm note above $0.7300. The Slow Stochastic is over-extended and could turn up next week. The MACD is still pointing lower. After settling out the Bollinger Band on Wednesday and Thursday, the Aussie moved back into it (~$0.7300) ahead of the weekend. Initial resistance is seen in the $0.7335-$0.7355 band.

Mexican Peso

The US CPI boosted the dollar by nearly 1.6% against the peso, the most in five months. It was the only advance of the week, but it was sufficient for the greenback to close around 0.6% stronger. The high for the week (~MXN20.7225) was recorded in the hours after the central bank delivered its fourth quarter-point rate hike. Banxico showed no appetite to increase the pace, unlike other regional central banks, even though CPI is still accelerating.

Still, the greenback slightly exceeded the (61.8%) retracement target (~MXN20.70) of its decline from the November 3 high (~MXN20.98) to the November 9 low (~MXN20.2515) before retreating ahead of the weekend. Support is seen around the 20-day moving average (~MXN20.42). Among emerging market currencies, the Brazilian real (~2.3%) and the Chilean peso (1.6%) fared best. The Hungarian forint (~-2.9%) and the Turkish lira (-2.75) saw the largest losses. The JP Morgan Emerging Market Currency Index fell by about 0.40% last week, the eighth weekly decline in the past ten.

Chinese Yuan

One would not know it by reading much of the free financial press, but the Chinese yuan is the strongest currency in the world this year. Its 2.3% advance eclipses the Canadian dollar, the only major currency stronger against the US dollar on the year (~1.3%). The tensions in Europe and the pullback in oil prices saw the Russian rouble tumble almost 2.3% last week. It was knocked from its perch as the top performer, allowing the yuan to pull ahead. The dollar settled last week, slightly under CNY6.38, its lowest close since May 31, when it recorded a three-year low (~CNY6.3570).

The trend line connecting the 2014 dollar-low and 2018 low is frayed in May and June but essentially held. It is now being violated more convincingly. Sentiment toward investment in China has become in fashion again. The NASDAQ Golden Dragon Index that tracks Chinese companies that trade in the US rallied nearly 7% last week. China’s 10-year yield of 2.80% may not sound particularly exciting, but it is the only benchmark that has not sold off this year. The yield has fallen 20 bp.

This article was written by Marc Chandler, MarctoMarket.

Greenback has Legs Ahead of the Fed and Jobs

The pre-weekend and month-end activity may have exaggerated the greenback’s gains, but we suspect ahead of the FOMC meeting and the US jobs data that is the direction. Our understanding of the technical condition also favors a stronger dollar.

The jump in Australian rates may help explain why the Aussie was the strongest of the majors (~0.75%). However, the trajectory of monetary policy does not offer satisfying insight into other currencies. The underperformance of the Norwegian krone (~-1.0%), where the central bank will most likely hike rates next week, for example.

It seems almost as if the markets have concluded that most major central banks are behind the inflation curve. It expects that officials will move to correct the situation rather quickly regardless of the respective declaratory policies. This gap lends itself to policy challenges.

The Reserve Bank of Australia did not defend its bond target in the past week, though it did so on October 22. With little official guidance, the market took Australia’s two-year yield up more than 61 bp last week (to 0.715%), and more than a third was recorded ahead of the weekend. The divergence may lend itself to increased volatility, but so far, the volatility is confined mainly to the credit markets.

At the same time, the coupon curves generally flattened. There is some recognition that the rate hikes will be delivered in most major countries simultaneously as fiscal support is reduced. It is as if the great uncertainty leads many to swing between central banks slow to respond to the inflation risk and fear that they may choke off the recovery by acting against the price pressures. We suspect that the US dollar will trade higher next week as the market anticipates a hawkish Federal Reserve and a strong jobs report.

Dollar Index

The year’s high was set on October 12 near 94.55 and gently trended lower, reaching almost 93.25 on October 28. That move looks to have been completed. The pre-weekend move to around 94.30 appears to signal another run at the highs. The MACD is poised to turn higher, while the Slow Stochastic has already done so. The 94.50 area corresponds to a (38.2%) retracement of its decline since March 2020. The next retracement (50%) is a little above 96.00.


The euro rose by the most in five months on October 28 and reached almost $1.17, its best level of the month. But it most certainly was not a harbinger of a strong rally. Instead, it seemed to be related to some position squaring ahead of month-end. It surpassed the (38.2%) retracement objective of the slide that began in early September found around $1.1670 but could not quite make it to the next retracement (50%) near $1.1710.

The single currency could not hold above $1.16 ahead of the weekend, and support in the $1.1585 was easily violated. It quickly dropped to $1.1530, just ahead of the year’s low of near $1.1525. Like we saw with the Dollar Index, the MACD is set to turn lower and join the Slow Stochastic, which rolled over last week. The next downside target is slightly below $1.1500, and a convincing break could signal another two-cent move.

Japanese Yen

The dollar approached a two-and-a-half-week low against the yen near JPY113.25 as the US 10-year yield approached 1.50% on October 28, corresponding to the (38.2%) retracement of October’s rally and the 20-day moving average. The greenback quickly recovered and rose to around JPY114.10 before the weekend, though it closed slightly below.

The price action helps mark out the range we have been anticipating, JPY113.00 on the downside and JPY114.50-JPY115.00 on the upside. The MACD and the Slow Stochastic are still falling. Barring the LDP and its coalition partner Komeito losing its majority, the election is unlikely to drive the exchange rate. However, many observers suspect an exceptionally poor showing for the LDP could lead to a larger supplemental budget.

British Pound

Sterling rallied a little more than four cents from the late September low to the recent high around $1.3835, but it came to an end in a dramatic fashion. The weekly loss was modest (~0.55%), and it was fully accounted for before the weekend as sterling dropped around 0.8%, the most in October to slightly through $1.3670. The pre-weekend loss met the (38.2%) retracement objective of the month-long rally.

The next retracement objective (50%) is closer to $1.3625. The momentum indicators are just turning lower. The risk is a return to the year’s low near $1.34. The budget announcement seemed to reinforce speculation that the Bank of England will hike rates next week. Although Governor Bailey says ongoing QE will not prevent it from hiking rates, we suspect it will also adjust its bond-buying as two dissenters, including a deputy governor, wanted last month.

Canadian Dollar

The Bank of Canada ended its QE and seemed to signal an earlier rate hike in the middle of last week. The more hawkish posture knocked the greenback from the top is its range, a bit above CAD1.2430 to almost CAD1.2300, the lower end of the range. It chopped within it over the next two sessions.

It flirted with CAD1.24 but finished closer to CAD1.2385. A move above CAD1.2430, where the 20-day moving average is found, would be an early sign that the US dollar’s decline since September 20 began near CAD1.29 will correct higher. The first target would be the CAD1.2490-CAD1.2520 area, which holds the 200-day moving average and the (38.2%) retracement of the leg down. The momentum indicators have turned higher, suggesting a stronger greenback.

Australian Dollar

The Australian dollar posted an outside up day on October 28, and it rose to its best level since early July. To be sure, this was not a breakout. The Aussie stopped short of the 200-day moving average, near $0.7560, and there was no follow-through buying ahead of the weekend.

The momentum indicators are stretched but are not quite turning. A break of the $0.7480 area would be the first sign of the pullback that we anticipate. The first (38.2%) retracement objective of the month-long rally is near $0.7410, which is around where the 20-day moving average is found. Below there, the next target would be closer to $0.7360.

Mexican Peso

The dollar gained a little more than 1% against the peso before the weekend, the largest gain in the month and half of the week’s advance. News that Mexico’s economy unexpectedly contracted in Q2 (-0.2% quarter-over-quarter) contributed to the selling pressure on the peso.

The greenback’s surge carried it slightly beyond the (61.8%) retracement objective of the decline from above MXN20.90 on October 12 to about MXN20.12 on October 22 and 26. That retracement target is around MXN20.6040. Despite the intrasession penetration, the dollar finished below it.

The next area of resistance is by MXN20.80. The momentum indicators have turned higher for the dollar. Ironically, if the peso’s weakness extends and persists, partly in reaction to the weakening economy, the inflationary impulse makes a 50 bp hike when Banxico meets on November 11 more likely. The first two hikes in the cycle were for 25 bp.

Chinese Yuan

The yuan fell a minor 0.33% against the dollar last week, the first five-week loss. The greenback closed above CNY6.40 for the first time since October 18. It had looked like the dollar was settling into a range of around CNY6.38-CNY6.40. If we are right about the scope for broader dollar gains, the greenback could rise back into the CNY6.4100-CNY6.4250.

The yuan’s weakness comes as the inclusion of Chinese bonds by the FTSE Russell flagship index becomes effective. On the one hand, China’s premium over US 10-year yields has fallen from 220 bp at the end of last year to 126 bp in late October and finished the month around 144 bp. On the other hand, of the major bond markets, China is the only one where yields fell this year (~16 bp).

This article was written by Marc Chandler, MarctoMarket.

Are the Technicals Anticipating a Soft US GDP Report? Could it be a “Sell the Rumor buy the Fact?”

Indeed, the greenback fell against all the major currencies, even the Japanese yen, against which it had reached new four-year highs (~JPY114.70) before pulling back. On the other hand, the Antipodean currencies and the Norwegian krone continued to lead the move against the US dollar. The Aussie rose to new three-month highs, while the Kiwi, Nokkie, and Canadian dollar saw four-month highs.

Emerging market currencies were more mixed than the majors. At the end of the week, Russia’s larger than expected 75 bp rate hike helped lift the rouble, the best emerging market currency, last week. It reached a 15-month high ahead of the weekend. The Chinese yuan reached its best level in five months last week.

On the other hand, the Turkish lira and Brazilian real came under intense selling pressure. Turkey’s central bank showed little concern about the lira’s exchange rate when it delivered a larger-than-expected 200 bp cut in the one-week repo rate. At 16%, it stands below the headline and core inflation rates (19.58% and 16.98%, respectively in September. The lira lost 3.7% last week and fell to a record low.

The lira dropped by 25% in 2020 and is off another 22.6% this year. Political and economic turmoil in Brazil gave Turkey a run for its money. The Brazilian real fell 3.3% last week, which almost doubled its depreciation this year to 8.00%. President Bolsonaro has lost the confidence of investors and local businesses. Brazil may report that inflation stabilized (above 10%) in October, ahead of the central bank meeting, which is widely expected to lift the Selic rate 100 bp to 7.25%. It would be the third such move this year after beginning the cycle with three 75 bp increases.

Dollar Index

The high for the year was set on October 12, near 94.55. It pulled back to around 93.50 early last week before consolidating. It met the (38.2%) retracement objective of the leg up that began in early September and came in about 93.55. The next important chart area is the 93.00-93.25. The momentum indicators are still headed lower, but prices have stabilized. A close back above 94.00 would suggest that minor correction is over.

The Dollar Index settled at the end of last month slightly below 94.25. If it does not recapture this by the end of next week, it will post the first monthly loss since July. The dollar’s losses may reflect some position adjustment ahead of a soft GDP report. However, the market could be vulnerable to a “sell the rumor buy the fact” as the market quickly turns its attention to the November 3 FOMC meeting and the start of tapering.


Although the single currency held above $1.16 since testing the $1.1570 area on October 18, the upside was limited to the $1.1670 area approached on October 19. Indeed, it has been confined to Tuesday’s range (~$1.1610-$1.1670) and traded in about a third of a cent range ahead of the weekend. The momentum indicators are pointing higher. Yet, the market lacks energy even though the five-day moving average cross above the 20-day moving average for the first time since mid-September.

The US 2-year premium over Germany rose for the sixth consecutive week and around 110 bp, it is the most since March 2020. It was closer to 200 bp before the pandemic. The ECB meets next week, but important decisions are not expected until the December meeting. The EMU reports Q3 GDP, and it is expected to have grown around 2% quarter-over-quarter. Lastly, rising energy prices and a weaker euro suggest that the preliminary October CPI risk is on the upside.

Japanese Yen

After rising to a four-year high around JPY114.70, the dollar appears to have entered a consolidation phase. It pulled back to about JPY113.40 ahead of the weekend. The weak close sets up a test on the JPY113.25 support area and then JPY112.75. We note that US yields remain firm, but the dollar-yen rate has become a bit less sensitive to it (the correlation has softened). The dollar’s four-week ascent against the yen ended last week with a roughly 0.65% pullback, which tested the trendline off drawn from the lows before last month’s FOMC meeting.

We have suggested that at least initially, the JPY114.50-JPY115.00 may mark the upper end of a new range for the dollar. If that holds, the market may have to fish for the lower end of the range, and perhaps it may be encouraged by a rally in US Treasuries either ahead of or in response to the Q3 GDP estimate, for which the Atlanta Fed’s tracker sees at 0.5% annualized.

British Pound

Sterling was practically flat last week despite the seventh consecutive weekly increase in the implied yield of the December 2021 short-sterling interest rate futures contract. The implied yield rose 10 bp to about 46 bp. In early September, before the surge in rates began, it was at 0.11%. Even at the end of the week, BOE officials (chief economist Pill) were still goading the market by saying a hike in November was “fairly balanced.”

Sterling’s rally, which began the month near $1.34, stalled around $1.3835 last week (fraying the upper Bollinger Band), just in front of the 200-day moving average (~$1.3850). This area also corresponds to the (50%) retracement of the sell-off since the May high ($1.4200). Momentum indicators are getting stretched but have not begun leveling off. Support is seen in the $1.3675-$1.3700 area.

Canadian Dollar

The Canadian dollar rose for the fifth consecutive week, albeit barely, and reached levels not seen since June. The market is aggressive in pricing in a hike several months before the Bank of Canada anticipated the output gap to be closed. The implied yield of the March 2022 BA futures rose 11.5 bp, marginally exceeding the increase of the previous two weeks. At 0.795%, it is 23 bp on top of the December 2021 contract yield.

The Bank of Canada meets next week and may subtly push against speculation of an early hike. After falling slightly below CAD1.2290, the US dollar reversed higher but again encountered selling pressure near CAD1.2385. Both the MACD and Slow Stochastic appear to have leveled off in oversold territory. However, it probably requires a move above CAD1.2400-CAD1.2425 to suggest a corrective phase as opposed to consolidation.

Australian Dollar

The Aussie rose 0.6% last week, its third weekly advance. The move extended its gains to 3.3% this month. It settled last month around $0.7225. It is not just against the US dollar; speculative participants have driven the Aussie up on the crosses, including the yen and euro. The $0.7500 area corresponds to the (50%) retracement objective of the slide from early May that began by $0.7900 and bottomed in late August close to $0.7100.

The next (61.8%) retracement is found just shy of $0.7600, but before that, the 200-day moving average (~$0.7565) must be overcome. The momentum indicators are stretched, and the Slow Stochastic has already begun curling over. The Aussie finished last week below its five-day moving average for the first time this month. Initial support is seen around $0.7450, and a break signals a move to $0.7400. If that goes, there is room for another cent pullback.

Mexican Peso

The peso extended the previous week’s gains that had halted a four-week slide. Indeed, the peso’s nearly 0.75% gain last week put it near the best performers in the emerging market universe. Anticipation of more aggressive rate hikes, even before the bi-weekly CPI, reported before the weekend, accelerated more than forecast. The peso may have also benefited from a rebalancing of portfolios away from Brazil, where neither the political nor economic environment is favorable. The sell-off in bonds, stocks, and currency gives the sense that foreign investors are joining domestic investors in abandoning President Bolsonaro.

The Brazilian real managed to fall nearly as much as the Turkish lira (~3.3% vs. 3.6%). Before the weekend, the US dollar recorded a new low for the month (MXN20.1250) ahead of support seen near MXN20.10. A break sets up for a test on more important support around MXN20.00. The MACD and Slow Stochastic reflect the strong downside momentum. The latter has begun entering oversold territory. Mexico reports September trade, employment, and Q3 GDP next week. Growth is expected to have shifted lower to around 0.5% from 1.1% and 1.5% in Q1 and Q2, respectively.


If we begin by acknowledging that the yuan is closely managed and observe that it has risen four consecutive weeks to levels not seen since June, it seems reasonable to conclude that officials desired some yuan strength. And that strength should be kept in perspective. It is a little less than 1% this month. Still, the 0.8% gain last week was more than the cumulative gains of the previous three weeks and was the biggest advance since the last week of May when the dollar’s three-year low (~CNY6.3570). The dollar finished last week near CNY6.3835.

Some speculate that Beijing’s efforts to secure energy supplies and dampen commodity prices are consistent with a stronger currency. However, the volatility of commodities overwhelms the exchange rate volatility that PBOC officials tolerate. Also, the exchange rate is a blunt instrument, creating unintended consequences. Some demand for the yuan may have stemmed from the dollar bond issuance last week (four tranches for $4 bln). The momentum studies on the offshore yuan are stretched.

This article was written by Marc Chandler, MarctoMarket.

Greenback’s Gains Pared Mostly, but Extended Against the Yen

The yen was the weakest of the major currencies, falling almost 1.75%, its worst week since March 2020. The JP Morgan Emerging Market Currency Index initially declined to a new low for the year before recovering to snap a five-week slide and gain nearly 0.45%.

Despite the six basis point gain ahead of the weekend, perhaps helped by a stronger-than-expected September retail sales report, the 10-year note yield of 1.57% was off about four basis points on the week. The short end of the coupon curve was firmer as the curve flattened. The 2-year yield rose six basis points to 40 bp, the highest since last March. The yield has fallen only in one session so far this month.

As we have noted (here), the market is particularly aggressive in pricing in Fed tightening next year. With the average effective rate holding at eight basis points, the August 2022 Fed funds futures contract implies a yield of 23 bp, which is equivalent to a 60% chance of a hike at the late July FOMC meeting. The Federal Reserve says it will finish the tapering around the middle of next year.

Dollar Index

Since last month’s FOMC meeting, the Dollar Index rallied from slightly below 93.00 to a little above 94.55. It has since pulled back to test the midpoint of that rally (~93.77). It consolidated ahead of the weekend with an inside day. The MACD is has rolled over, and the Slow Stochastic did not confirm the high and has turned down. The next retracement objective (61.8%) is closer to 93.60, which is also about where the (38.2%) retracement of last month’s rally is found. Despite the pullback and the fraying of the 20-day moving average (~93.85), the Dollar Index has not closed below the moving average since mid-September. Given its firm close before the weeks, it seems more like consolidation right now than a trend reversal.


Last Wednesday and Thursday, the euro posted its first back-to-back gain since early September. It rose to almost $1.1625 on Thursday, stopping just shy of its 20-day moving average and the month’s high of $1.1640. The $1.1640 area also marks the (50%) retracement of the euro’s losses since the FOMC meeting concluded on September 22. Although the MACD and Slow Stochastic have turned up, the price action is not inspiring, though it managed to finish the week above $1.16, even if barely, for only the second time this month.

The euro recorded a new low for the year on October 12, near $1.1525. The $1.1490 is roughly the (38.2%) retracement of the euro’s rally since the March 20202 low around $1.0635. The US 2-year premium over Germany moved above 100 bp last week for the first time since the pandemic struck. It has risen by about 10 bp since the FOMC meeting.

Japanese Yen

The greenback gained against the yen in six of the last seven sessions. It rose from about JPY111.45 to JPY114.45 during this run and reached a new three-year high. Indeed, its four-week rally matches the longest advance since April-May 2018. Rising US yields (last week more about the short-end than long-end) is the key catalyst. More participants are talking about new opportunities for the carry trade, but momentum players appear to have also jumped aboard.

We identified the JPY114.50-JPY115.00 area as the possible top of a new range. The MACD continued to trend higher and is approaching the high for the year set in March and April. The Slow Stochastic appears to be poised to turn lower earlier next week after re-entering over-bought territory. Initial support now is seen in the JPY113.00-JPY113.25 area.

British Pound

Sterling had a good week, gaining 1% against the dollar to reach its best level in a month (~$1.3775). It is up 2% this month, helped by an aggressive backing up of short-term UK rates. Specifically, the implied yield of the December 2021 short-sterling futures contract rose 8.5 bp last week, its sixth weekly advance, during which time the rate has surged 24 bp as the market prices in a hike before the end of the year.

There are two meetings left (November 4 and December 16). The momentum indicators are trending higher, and the five-day moving average crossed above the 20-day for the first time since mid-September. The pre-weekend gains toward almost $1.3775 kissed the upper Bollinger Band. Look for sterling to run into resistance in the $1.3800-$1.3850 area, which holds the (50%) retracement of its decline from the June1 high when it last traded above $1.42, the 200-day moving average, and the trendline connecting the May and September highs. Initial support now is likely in the $1.3650-$1.3670 area.

Canadian Dollar

The US dollar fell for the fourth consecutive week against the Canadian dollar. Since last month’s FOMC meeting, the Canadian dollar has been the strongest major currency, appreciating by around 3.25% to its best level in three months. At the end of last week, the US dollar approached the measuring objective of the head and shoulders pattern we have been tracking that projects to about CAD1.2300. The greenback exceeded the (61.8%) retracement objective of its rally since the multi-year low was set on June 1 near CAD1.2000, which came a little above CAD1.2365.

After dipping below CAD1.2340 before being squeezed back to CAD1.2400. The MACD is at its lowest level in a few months but does not appear poised to turn higher. On the other hand, the Slow Stochastic has flatlined in oversold territory. Initial resistance is seen in the CAD1.2430 area. Since the Bank of Canada meeting on September 10, the June 2022 BA futures contract has sold off, and the implied yield has risen by about 28 bp. It consolidated in the second half of last week. The swaps market is pricing in about 75 bp of tightening over the next year.

Australian Dollar

The Australian dollar rallied almost 1.5% last week and finished above $0.7400 for the first time in over a month, corresponding to the (38.2%) retracement of the decline from the May high of almost $0.7900. It traded above its upper Bollinger Band every day last week and closed above it (~$0.7415) for the second consecutive session ahead of the weekend. Booming commodity prices are widely seen as a supportive factor, but they did not appear to do the Aussie much good in the June-August period.

The economic re-opening helps explain why the market can look past poor data, like the September employment report. The Aussie has fallen in only three sessions so far this month and is looking stretched. The MACD is overbought and is at its highest level in five months. The Slow Stochastic is also overbought and could turn lower next week. Initial support below $0.7400 is around $0.7375-$0.7380. On the upside, last month’s high was closer to $0.7480.

Mexican Peso

The greenback’s four-week rally against the peso ended with a bang. It fell almost 1.7% last week, the largest weekly loss since June. The dollar made a marginal new seven-month high a little above MXN20.90 on October 12, reversed lower, and fell to MXN20.32 ahead of the weekend, a new low for the month. Two factors helped the peso recover. First, the tone from most Banxico officials and the minutes seemed to play up the chances that the central bank may lift rates by more than the previous quarter-point moves. Second, risk appetites were strong, helping lift equities.

The MSCI Emerging Market Equity Index rose the second consecutive week after falling in the previous four weeks. The momentum indicators are heading lower for the dollar. With the pre-weekend decline, the greenback has given up a little more than half of the gains since the mid-September low (~MXN19.85). That retracement was found a little below MXN20.38. The next retracement (61.8%) is around MXN20.25.

Chinese Yuan

On October 14, the PBOC set the yuan’s exchange rate against the dollar lower than the models (Bloomberg survey) suggested. The gap was big enough to suggest that perhaps officials were signaling that they did not want to see continued yuan appreciation. The market seemed to shrug it off and took the yuan to a marginally new four-month high before the weekend. Some observers draw a connection between foreign flows returning to the Chinese equity market and the yuan’s strength. PBOC’s claim that the risks posed by Evergrande are “controllable” and unlikely to spread is precisely what other central banks said as the housing market bubble popped in 2007-2008.

Investors seem mistrustful and have taken other high-yielding Chinese bonds (mainly in the property development sector to around 20%). Given the slowing of the economy and the low consumer inflation, we suspect officials do not want the yuan to strengthen much from here, but to impose their will, it may have to escalate its efforts. Initial support for the dollar may be in the CNY6.4200-CNY6.4250 range, with CNY6.45 the likely nearby cap.

This article was written by Marc Chandler, MarctoMarket.

Mexico’s Central Bank Hikes Rates to 4.75% on Inflation Concerns

All 22 analysts surveyed in a Reuters poll had expected the bank, known as Banxico, to raise the rate for the third time in a row to 4.75%.

“Although the shocks that have increased inflation are expected to be transitory, due to their variety, magnitude, and the extended horizon over which they have affected it, they may pose risks to the price formation process and to inflation expectations,” Banxico said in its monetary policy statement.

In order to avoid those risks, Banxico said it deemed it necessary to hike the key rate.

Mexican consumer prices during the first half of September rose 0.42% to reach annual inflation of 5.87%, already edging above the 5.59% clocked for August, official data showed last week.

That is far above Banxico’s target rate of 3% plus or minus one percentage point.

Banxico said that annual headline and core inflation projections are expected to decrease, particularly for one year and beyond, and to converge to its 3% target by the end of the forecast horizon.

“Banxico’s decision to raise was consistent with our expectations and accompanied by yet another upward revision to inflation forecasts for the first half of 2022. But the emphasis of the statement remains on the transitory nature of price pressures and suggests Banxico does not see a lot more monetary tightening ahead,” said Charles Seville, Americas sovereigns co-head at Fitch Ratings.

Still, forecasts Banxico gave for annual headline inflation for the fourth quarter increased to 6.2%, from 5.7% previously, and projections for core inflation also rose to 5.3%, from a prior view of 5.0%.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Anthony Esposito and Dave Graham; Editing by Chizu Nomiyama and Alistair Bell)

USD Gains Accelerate

The SP500 created a small flag, which is probably a stop before an attack on the neckline of the Head and Shoulders formation.

The Nasdaq escaped from the wedge to the downside. The Head and Shoulders formation is in play here too.

The EURUSD broke a major horizontal support and is aiming lower.

The GBPUSD is in pretty much the same situation.

The USDJPY is climbing higher and it all started with a bullish breakout from the symmetric triangle pattern.

The CADJPY created a small pennant in the mid-term. A breakout will show us the direction.

The GBPJPY is also waiting for a breakout.

The USDMXN already had one. This time, to the upside. Sentiment is definitely positive.

We end with Silver, which also broken an important level, but in this case, it’s a crucial horizontal support. The next few days and weeks can be tough.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD, Cable and Silver Bounce From Crucial Horizontal Supports

SP500 opens higher but Asian and European sessions bring only sour disappointment.

Dax is doing slightly better but we’re still below a major mid-term down trendline.

Nasdaq is breaking the lower line of the wedge, which is actually pretty negative.

GBPUSD is defending crucial long-term horizontal support.

USDJPY continues the upswing after the price broke the upper line of the symmetric triangle pattern.

AUDCHF is trying to create the right shoulder of the iH&S formation.

CADJPY is with a proper buy signal, after the price breaks the neckline and the mid-term down trendline.

GBPJPY is very close to a buy signal as the price is currently breaking the dynamic resistance as we speak.

USDMXN is very close to a major trading signal as we are almost at the end of the symmetric triangle pattern.

Silver is trying to create a double bottom formation on a crucial horizontal support.

For a look at all of today’s economic events, check out our economic calendar.

Dollar Index Climbs After U.S. Retail Sales Show Surprise Rebound

The dollar index, which measures the U.S. currency against six others, added to gains following the report and was last up 0.5% at 92.866. It hit its highest level since Aug. 27.

Retail sales rose 0.7% last month, boosted in part by back-to-school shopping and child tax credit payments, while data for July was revised down.

A separate report showed U.S. initial claims for state unemployment benefits increased 20,000 to a seasonally adjusted 332,000 for the week ended Sept. 11. Economists had forecast 330,000 applications for the latest week.

“If you look at the retail sales number, it’s quite constructive even with the revisions, so we are seeing the dollar benefit from that, particularly against the funding currencies like the euro, Swiss and the yen,” said Bipan Rai, North American head of FX strategy for CIBC Capital Markets in Toronto.

The news could bolster investor expectations for next week’s Federal Reserve policy meeting and how soon the U.S central bank will start to taper stimulus.

“It feels like whatever lingering concerns there were with the underlying economy … that was kind of washed away a little bit. So as we move towards the Fed next week, the evidence backs up the idea that we’re going to get a taper signal from the Fed at the meeting,” he said.

On Tuesday, the dollar index fell to a one-week low of 92.321 after a softer-than-expected inflation report. Its low for the month was 91.941, on Sept. 3, when payrolls data disappointed.

Investors are looking for clarity on the outlook for both tapering and interest rates at the Fed’s two-day policy meeting that ends next Wednesday.

Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy.

It also means the central bank will be buying fewer debt assets, in effect reducing the amount of dollars in circulation, which in turn lifts the currency’s value.

The dollar also gained 0.3% to 109.70 yen , after sliding to a six-week low of 109.110 in the previous session.

The euro was 0.4% lower at $1.1766.

The Swiss franc also fell against the dollar and was last at 0.9263 franc per dollar.

Elsewhere, the Australian dollar was down 0.5% at $0.7296.

Earlier, data showed the country’s jobless rate unexpectedly fell to 4.5%, but the statistics bureau said the change reflected a drop in the participation rate rather than a strengthening of the labor market.

In cryptocurrencies, moves in bitcoin were relatively subdued. It was last down 0.9% at $47,711. Ether changed hands at $3,589, down 0.7%.

AMC Entertainment Holdings Inc boss Adam Aron said in a tweet this week that the theater chain would accept ether, bitcoin cash and litecoin alongside bitcoin for ticket purchases.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Caroline Valetkevitch; Additional reporting by Ritvik Carvalho in London and Kevin Buckland in Tokyo; Editing by Alexander Smith, Mark Potter and Jonathan Oatis)


Two Major Surprises Today

The dollar has been sold against nearly all the currencies today. Among the majors, the Antipodeans and Swedish krona lead the move. The euro rose briefly through $1.1830 in the European morning, its best level in a little more than three weeks. The JP Morgan Emerging Market Currency Index is rising for the seventh time in eight sessions.

The risk-on mode to finish the month is evident in equities as well. Following the new record highs in the US, the MSCI Asia Pacific Index climbed for the sixth session in the past seven and has taken out the two-and-a-half-month downtrend. Europe’s Dow Jones Stoxx 600 is rising for its third consecutive session, while US futures indices are extending their recent gains. Debt markets are quiet. The US 10-year is hovering around 1.28%, while European yields are 1-3 bp firmer, following the higher than expected August CPI.

The UK Gilts are a notable exception, and the yield is nearly two basis points lower at 0.66%, perhaps helped by sterling, which is at a new two-week high. Gold found support near the 200-day moving average (~$1809) and is trading inside yesterday’s range when it peaked around $1823. Oil prices are surrendering yesterday’s late gains. OPEC+ meets tomorrow. Output is scheduled to rise by 400k barrels per day, but there are concerns about the strength of demand in the face of the spread of Covid. October WTI finished last month near $73.25. It is now near $68.40 after last week’s 10.6% rally.

China’s iron ore contract snapped a six-day advance today, slumped almost 2.5%. Copper is up slightly for the third consecutive session and the seventh in the past eight. The CRB Index rose yesterday for the fifth time in the last six sessions and set a new high for August. It is within striking distance of the six-year high set at the end of July.

Asia Pacific

The risk-on move today is surprising given the poor Chinese PMI. The manufacturing PMI slipped a little more than expected to 50.1 from 50.4, but the real shocker was the non-manufacturing PMI. It slumped to 47.5 from 53.3. The median forecast in Bloomberg’s survey anticipated a pullback to 52.0 from 53.3. This drove the composite to 48.9, its first reading below the 50 boom/bust level since February 2020. The composite peaked in May at 54.2 and has fallen in each of the following three months. Recall that the PBOC cut reserve requirements in July. Today’s dismal reading is likely to fan expectations for further accommodation.

On the other hand, Japan’s data was generally better than expected. Industrial output fell 1.5% in July. That may not sound so good, but it followed a 6.5% jump in June and was better than the 2.5% drop of the median forecast in Bloomberg’s survey. In addition, the unemployment rate unexpectedly slipped to 2.8% from 2.9%, and the job-to-applicant ratio rose to 1.15 from 1.13. defying forecasts for a decline. Lastly, housing starts also rose more than expected. However, with a formal Covid emergency covering more than 70% of the population, the recovery is not expected to gain much traction until Q4.

The virus could be knocking Australia into a contraction. The Q2 current account surplus was a little smaller than expected but was offset to some extent by the upward revision to Q1. To the extent that Australia’s current account is driven by trade flows, we are concerned that the rise in prices has concealed a decline in volumes. Separately, Australian building approvals slumped in July by 8.6%, more than expected, and follows a 5.5% decline in June (initially reported a -6.7%). The final August PMI due later this week is expected to confirm the 43.5 preliminary composite reading, though the risk is on the downside.

The dollar remains confirmed to a narrow range below JPY110.00, and it is holding above yesterday’s JPY109.70 low, where a nearly $400 mln option is set to expire later today. Recall that the dollar settled last month slightly above JPY109.70 too. After consolidating its pre-weekend gain yesterday, the Australian dollar was pushed higher to $0.7340 today to test the two-week high. Initial support is seen around $0.7320. Some buying may have been related to the A$588 mln option at $0.7300 expiring today.

The next area of chart resistance is seen in the $0.7370-$0.7380 area. Despite the disappointing data, the dollar eased toward the lower end of its recent range against the Chinese yuan. It found support in front of CNY6.4570. The yuan, like the yen, is nearly flat on the month. The dollar ended July near CNY6.4615. The PBOC set the dollar’s reference rate at CNY6.4679, tight to expectations of CNY6.4680.


Today’s upside surprises by French and Italian inflation readings helped lift the aggregate CPI to 3.0% from 2.2% in July. The median forecast in Bloomberg’s survey was for a rise to 2.7%. The core measure also rose more than expected to stand at 1.6%, up from 0.7% in July. The month-over-month increase of 0.4% was twice what had been expected. Recall that Germany’s CPI actually slipped to 3.4% from 3.5% when reported yesterday, while Spain surprised with a 3.3% year-over-year rate instead of 2.9%. Italy’s August CPI was “supposed” to fall by 0.2% but instead rose by 0.3%, and the year-over-year rate surged to 2.6% from 1.0%. French inflation rose 0. 7% this month to lift the year-over-year rate to 2.4% from 1.5%.

However, the French surprise was even more pronounced in the July consumption report. The median forecast in Bloomberg’s survey called for a 0.2% increase in consumer spending. Instead, it crashed by 2.2%. Consider that French consumer spending fell by an average of 0.1% a month in the first six months of the year. The only kind thing to be said is that it has become a volatile number under covid. Germany had a pleasant surprise. Its unemployment rate fell this month to 5.5% from 5.6% in July (that was initially reported at 5.7%). The unemployment queue fell by 53k, more than the 40k decline forecast. Note that Germany lost about 650k jobs in Q2 20 and has since gained back about 400k.

The euro posted an outside up day before the weekend, and follow-through yesterday was limited to about $1.1810. Additional buying today lifted it through $1.1830, its best level since August 6. It is rising for the seventh session in the past eight. An expiring option at $1.1875 for almost 720 mln euros seems too far to be relevant today, but tomorrow there is a nearly 650 mln option at $1.1825 that will be cut. The $1.1850-area may be sufficient to cap it today.

Sterling edged up to $1.3800, a two-week high. Soft consumer credit and mortgage lending figures may have encouraged the pullback in Europe to the $1.3760 area. The 200-day moving average is found near $1.3810. Meanwhile, the euro is approaching the GBP0.8600 cap that has held this month.


Pending July, home sales and the Dallas Fed’s manufacturing survey were consistent with the recent string of US reports that have been weaker than expected. As the second month of the quarter winds down, look at Q3 GDP forecasts. The Fed’s GDP nowcasts have softened. The NY Fed has Q3 GDP tracking 3.8%, while the Atlanta Fed’s model puts it at 5.1%, with the St. Louis Fed at 4.9%. This makes the median forecast in Bloomberg’s survey of 6.9% seem high. But it is not just that the Fed’s models are updated more frequently.

The last four contributions to the Bloomberg survey averaged 7.7%. However, it was flatted by one forecast that is the highest in the survey, for 11.2%. The others at 6.5%-6.6% were still above the Fed’s trackers.

Today’s US data features house prices (FHFA and CoreLogic). House prices are still rising. The Conference Board’s August confidence report will also be released. The market expects a softer report, but the risk is on the downside after the University of Michigan’s survey showed a sharp drop (10-year lows). Tomorrow, the ADP reports its private-sector job estimate. The Bloomberg survey median is for 625k after a 330k increase in July. Canada reports June monthly GDP. A sharp recovery is expected after a 0.3% contraction in May.

Growth in Q2 is seen at 2.5% annualized. Mexico’s central bank releases its inflation report. While price pressures are still on the upside, the two hikes (July and August) may see Banxico pause in September. Brazil sees June unemployment (14.4% vs. 14.6%) and its July budget. Of note, reports suggest that Brazil has surpassed the US in the proportion of adults with a single vaccine. Lastly, Chile’s central bank is expected to hike its overnight target rate by 50 bp to 1.25%. It lifted the key rate by 25 bp in July and signaled the start of a sequence.

The US dollar is trading at ten-day lows against the Canadian dollar. It has entered an area that may prove sticky ahead of today’s options expiry. There are options for $1.2 bln at CAD1.2560. The low in Europe has been CAD1.2570. There is another option that may be being absorbed for $645 mln at CAD1.2575. The greenback is fraying the uptrend drawn off the July 30 low and comes in today near CAD1.2585. Initial resistance is now pegged in the CAD1.2600-CAD1.2620 area.

The US dollar is seeing more follow-through selling against the Mexican peso after posting an outside down day at the end of last week. Dollar selling yesterday was limited to MXN20.11 and the 200-day moving average. Selling today has pushed the greenback to roughly MXN20.0650, an eight-day low. The next area of support is around MXN20.00.

This article was written by Marc Chandler, MarctoMarket.

Market Awaits Fresh Incentives

Perhaps the FDA’s approval removes another reason for vaccine hesitancy in the US, while China has reportedly brought its flare-up under control. US S&P 500 and NASDAQ set new record highs, and Asia Pacific markets moved higher, though there was profit-taking in Hong Kong on Chinese tech names. It was the third consecutive advance of the MSCI Asia Pacific Index.

European shares are edging higher, and US futures are posting minor gains. The US 10-year continues to push against the 1.30% area, while European yields are mostly 2-3 bp higher. The greenback is narrowly mixed through the European morning, with a small upside bias. The majors are +/- 0.15%. Emerging market currencies are also mixed, but the JP Morgan EM FX index is rising for the fourth session after trending lower in the previous four sessions. Gold has backed off from the 200-day moving average ($1810) it approached yesterday. Support is seen near $1775. October WTI is consolidating its big two-day advance (~8.5%), while iron ore and copper are extending their recoveries.

Asia Pacific

China’s regulatory crackdown spooked foreign investors. The SEC has modified the disclosures needed for Chinese IPOs in part because of Beijing’s recent actions. Consider the performance of the NASDAQ Golden Dragon Index, which is compromised of companies whose shares are traded in the US while conducting a majority of their business in China. It set a record high in mid-February, a few months after Beijing stopped the Ant IPO. It was halved in the following six months and recorded its lowest level since June 2020 on August 19.

The index has fallen for eight consecutive weeks coming into this week and 11 of the past 12 weeks. The Golden Dragon Index rose by 8% yesterday. It was the third successive gain. The fear of missing out may be greater than the fear of Beijing’s moves. US SEC Chair Gensler renewed his warning that unless Chinese companies listed in the US allow inspections of their financial audits, their shares could be delisted from the NYSE and NASDAQ starting in 2024.

South Korea’s central bank meets tomorrow. It is a close call, and news yesterday of rising household credit favors a hike. The issue is really one of timing, and a slight majority in the Bloomberg survey see the next meeting (October 12) as more likely. Governor Lee had suggested last month that a hike as early as this week was possible and opined that policy would still be easy if the central bank were to deliver 1-2 hikes. The reason we thought the October timeframe would be more likely is primarily due to the virus. Seoul is under lockdown that has been extended into next month. The government’s goal is to have 70% fully vaccinated by the end of next month.

The dollar remains in a tight range against the Japanese yen. It is trapped in a JPY109.40-JPY110.25 band for the fifth session, though it has not been above JPY110 since Monday. There is a $585 mln option at JPY109.90 that will be cut today. The greenback has been stopped just short of it in Asia yesterday and again today. The Australian dollar fell every session last week, and its 3.2% drop was the largest since last September. It bounced 1.75% over the past two sessions and is consolidating in a little more than a 10-tick range on either side of $0.7250.

News that China’s second busiest port has re-opened after a two-week covid-related shutdown is a welcome development. After closing above the upper end of its recent range (~CNY6.50) before the weekend, the dollar slipped back to around CNY6.47 yesterday but has steadied today. It is inside yesterday’s range, unable to resurface above CNY6.48. The PBOC set the dollar’s reference rate a bit firmer than the models expected (CNY6.4728 vs. CNY6.4715). The central bank was generous in its seven-day repo operation, providing a net injection of CNY40 bln, the largest in six months.


The German August IFO survey disappointed. The current assessment improved, but the drop in expectations warns that many fear this is the best it gets and that the German economy is near a peak. At 97.5, the expectations component was the lowest since February. The current assessment (101.4 vs. 100.4) is the highest since May 2019. It leaves the overall assessment of the business climate at 99.4, a three-month low. Separately, we note that the controversial Nord Stream 2 pipeline lost a case in a German court earlier today.

It was unable to secure a waiver from EU rules that require the pipeline to be certified as an independent transmission or system operator. This appears to require that Gazprom surrender control and command functions. It is part of what could be a long, drawn-out process, and the pipeline has already sought the necessary certification. Gas prices initially jumped on the news as some fear a delay in operations.

At yesterday’s G7 meeting, Europe tried in vain to convince the US to extend the August 31 deadline. The Taliban also rejected the idea of an extension. However, given that it will take a couple of days to complete the withdrawal of US troops, there are only a few more days to finish the civilian evacuations. Press reports cite a UK diplomatic memo noting that President Biden assured the G7 in June that he would maintain enough of a security presence in Afghanistan to ensure their operations in Kabul could continue following the main US withdrawal. However, Biden has requested a contingency plan from the Defense and State Departments for a delay.

The Scottish National Party concluded a powersharing agreement with the Greens at the end of last week. In exchange for two ministerial posts, the Greens will support the government on confidence votes and budget issues related to their common program. The SNP was a seat shy of a majority in the May elections, and the support of the Greens put the government on more stable footing. The Greens also favor Scottish independence.

SNP leader and First Minister of Scotland Sturgeon is pushing hard for a referendum in the current term of parliament (five years) and ideally in the middle of 2023. The SNP holds a party conference next month, which may launch a more formal campaign. The UK government is cool toward a second referendum (1st lost in 2014), and many legal experts think 10 Downing Street could block it. Still, a non-binding test of the people’s preferences could give the power of a referendum as the non-binding EU referendum did for the UK in 2016. Of course, Scottish independence would require, among other things, either its own currency or a formal agreement to use sterling.

The euro’s three-day bounce is stalling. The single currency is trading within yesterday’s roughly $1.1725 to $1.1765 range. The key to the upside is the $1.18-area. It has not closed above it since August 5. Ahead of Fed Chair Powell’s speech at Jackson Hole at the end of the week, the market may be reluctant to push it. On the other hand, significant options at $1.17 expire for the next three days. Today’s options for a little more than one billion euros are the smallest.

Tomorrow, options for 1.4 bln euros will be cut, and on Friday, there are options for 1.5 bln euros at $1.17. Sterling is also inside yesterday’s range (~$1.3695-$1.3750). Recall sterling settled last week near $1.3625. A convincing move above $1.3740 could see the range extended to $1.3775-$1.3800. The euro has recovered from its lowest level against sterling (August10, ~GBP0.8450) and reached almost GBP0.8600 at the start of the week. It has since pulled back to about GBP0.8545 yesterday and is also recording an inside session.


The US’s recent 30-year bond sale did not see strong demand. Indirect bidders, often foreign central banks and multilateral lenders, came out for the 10-year auction on August 11 and yesterday’s two-year sale. Indirect bidders took a record of slightly more than 77% of the 10-year and 60.5% of yesterday’s $60 bln two-year note sale, the most in more than a decade. The high-yield of the two-year was a smidgeon above 24 bp, a two basis point increase from last month’s auction and but just inside the 0-25 bp Fed Funds target.

Following the strong bid-cover (2.65x vs.2.47x in July), the yield slipped a couple of basis points. Some observers suggest that the reduced T-bills have encouraged foreign central banks to move further out on the curve. While that may explain the demand for the two-year, it is not really a compelling narrative for the 10-year demand. China’s reserves rose by nearly $22 bln in July, and this did not seem to be bolstered by valuation as in July, as the other reserve currencies, like the euro, sterling, and yen, rose against the dollar.

We were skeptical when some economists shrugged off the terrible miss on last week’s retail sales report (-1.1% vs. median of -0.3% on the headline and -1.0% on the core vs. median forecast of -0.2%), claiming it reflected a shift toward services away from goods. Alongside the Richmond Fed’s manufacturing survey was a service revenue index. It fell from 19 in July to 15 in August.

Other services data point to slower growth, Friday, ahead of Chair Powell’s speech at Jackson Hole, July personal consumption expenditures will be reported. It is more comprehensive than retail sales. After rising 1% in June, the July increase is expected to moderate to around 0.4%. That was the average monthly increase in 2019. In 2018, it averaged a monthly gain of 0.3%.

The US reports its preliminary estimate of July durable goods orders today. Boeing reported it received 31 orders in July, the least since April, and follows a surge of 219 orders in June. The company made 28 deliveries in last month after 45 in June. This is partly why the durable goods orders tend to be volatile. Orders excluding transportation are expected to have matched June’s 0.5% increase, but the risk appears to be on the downside.

Canada’s economic calendar is light until next week. Mexico provides a final read on Q2 GDP. Quarter-over-quarter growth was estimated at 1.5%, and it might be revised slightly higher. Brazil IPCA August inflation is reported today, and another rise is expected. The year-over-year pace of 8.59% in July is likely topping 9% this month. The central bank meets next on September 22 and is widely expected to hike the Selic rate by 100 bp.

The US dollar peaked before last weekend near CAD1.2950. It posted a bearish shooting star candlestick and set a low yesterday, as stocks and oil rallied, near CAD1.2580, around the 20-day moving average and roughly where this month’s uptrend line is found. Below there, the 200-day moving average is near CAD1.2550. On the upside, resistance is seen by CAD1.2650.

The greenback traded between MXN20.1460 and MXN20.4565 before last weekend and remains in that range for the third session. This week, the dollar has been recording higher lows and lower highs, but it has not traded below MXN20.00 since last Wednesday. The dollar recorded a key reversal against the Brazilian real ahead of last weekend by making a new three-month high (~BRL5.4740) before reversing and falling through the previous session’s low. It settled near session-lows yesterday (~BRL5.2460). The next target is near BRL5.2070.

This article was written by Marc Chandler, MarctoMarket.