The CAD rallied against most of the other G10 currencies as it was supported by rising oil prices and inflation hitting an 18 year high.USOIL rallied over 3% yesterday after a larger-than-expected drawdown in the US Crude inventories was reported. Oil traders were also counting on wider vaccine programs that could boost the demand. The S&P 500 (0.85%), the DJIA (0.68%) and the Nasdaq (0.82%) all rallied as broad-based buying hit the markets yesterday. Only the utilities sector lost some ground (-0.13%) while the energy (3.74%) and the industrials (1.10%) were leading the gains. Today’s main risk event is the US retails sales release. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
CAD has been the strongest currency. It has been supported by rising oil prices and inflation hitting an 18 year high. CHF and USD are the weakest this morning but what really counts is what happens to the dollar when we get the ever so important retail sales numbers this afternoon European time. Treasuries yielded 1.31% at the end of the trading yesterday. Previous close: 1.28%.
USOIL rallied over 3% yesterday after a larger-than-expected drawdown in the US Crude inventories was reported. Platinum rallied along encouraged by the increased vaccination roll-outs and higher demand estimations for industrial commodities. Precious metals stayed weak as the risk sentiment started to change and the markets started to again favour risky assets.
The S&P 500 (0.85%), the DJIA (0.68%) and the Nasdaq (0.82%) all rallied as broad-based buying hit the markets yesterday. Only the utilities sector lost some ground (-0.13%) while the energy (3.74%) and the industrials (1.10%) were leading the gains. Not surprisingly, EOG, DVN, SLB, FCX and COP were the strongest stocks on our watchlist while WYNN, SBUX, NUS, QCOM and LVS were the weakest.
The above chart shows the % performance of each stock. Stocks are presented here with the S&P 500 tracking ETF (SPY, red line) to illustrate the performance of each stock relative to the benchmark index. This allows our readers to see the potential for intraday trading opportunities in these stocks. Often the sudden increase in volatility continues on the second day. You should, therefore, keep monitoring these stocks to see if they will satisfy your criteria for a trade. All % performance charts in this report are courtesy of Tradingview.com.
Today’s main risk event is the US retails sales release. For details on other important macroeconomic releases, see the TIOmarkets economic calendar here.
The CAD rallied against most of the other G10 currencies as it was supported by rising oil prices and inflation hitting an 18 year high. USDCAD pair retraced 0.60% closing below the SMA(20). The August CPI y/y came in at 4.1%. The change was significant but the BOC takes a view that inflation is transitory.
The pair is still trading above the SMA(50) with the SMA(20) also above the slower SMA. This and the higher reactionary lows in the chart give a bullish indication and suggest the 1.2761 resistance level could get tested today but as always we only trade what we see, not what we anticipate or believe. The key price levels in USDCAD are 1.2422, 1.2493, 1.2582, 1.2761 and 1.2948.
USDCNH has now broken the 6.4464 support and made a return move that was quickly rejected. Now the pair is trading again below this key support level and with lower highs & lower lows looks like the 6.4228 is at risk to be broken. The negative indications are invalidated if the market rallies from the current levels and breaks out of the bearish trend channel. This would create a double bottom. The key price levels for USDCNH are 6.3774, 6.4228, 6.4464 and 6.4640.
S&P 500 rallied from the SMA(50) after retracing close to our key support area formed by several technical factors. We wrote earlier: The next support level below this is a confluence zone at (4412 – 4430) where the 23.6% retracement level and the channel low coincide.
At the moment it looks like yet another higher low in the long series of dips is in the making. However, if we don’t see follow-through buying now then the risk of a downside break increases. A decisive break below the channel low would indicate a deeper retracement would be ahead. The key support and resistance levels & areas are 4352, 4412 – 4430 and 4550.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The FED||Fed Chair Powell said on Friday (August 27th) in Jackson Hole Symposium that tapering could begin in 2021 but also voiced concerns about the spread of delta variant.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, US lawmakers have agreed to a $1.2 trillion infrastructure spending plan. The Fed officials consider ending the asset purchases in the middle of 2022.|
|Yields||Apart from the recent pickup (that started in August 2021), the Treasury yields have been moving lower since March 2021. All in all, the yields and interest rates are extremely low on both nominal and real basis.|
|Employment||After two highly positive employment reports (+938K and +943K) the August number (+235K) was a big disappointment but in fact at a level that used to be the norm in the years before the pandemic. This number could delay the Fed taper but isn’t likely to reverse their decision to taper.|
|Inflation||The month on month Core CPI (excluding food and energy) for August was confirmed at 0.1% (0.3% expected) while the headline inflation (y/y) came in line with expectations (5.3%, 5.3% expected, 5.4% prior). The core CPI increased 4.0% on a year-on-year basis after advancing 4.3% in July. Fed’s view that inflation is transitory seems correct.|
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The Next Main Risk Events
- EUR – ECB President Lagarde Speaks
- USD – Core Retail Sales m/m
- USD – Retail Sales m/m
- USD – Philly Fed Manufacturing Index
- USD – Unemployment Claims
For more information and details see the TIOmarkets economic calendar here.
Market News & Facts
- China to release sinc, aluminium and copper from its reserves
- New Zealand GDP 2.8% (1.4% expected)
- Australian employment change -146.3k (-90k expected)
- UK August CPI 3.2% (2.9% y/y expected)
- China August retail sales 2.5% y/y (7% expected, 8.5% prior)
- US August CPI y/y +5.3% (5.3% expected)
- RBA’s Lowe: bond purchases likely to end in 2022
- OPEC: global oil demand to exceed pre-pandemic levels in 2022
- Natural Gas at multi-year highs
- US senator Manchin not voting for the $3.5 trillion package
- SNB: Negative rates are still needed to keep the CHF low
- China released some of its strategic oil reserves
- US weekly claims 310K (344K expected)
- ECB leaves the rates untouched but tapers a bit
- BOC left rates and QE unchanged
- US JOLTS job openings 10.934M (10.03M expected)
- Fed’s Williams: appropriate to start taper in 2021
- No chance expected from BOC today
- Japan GDP for Q2 +0.5% (+0.3% prelim.)
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