Today risk aversion drives the markets today with money pouring into JPY and CHF. Yesterday USD pairs had a mixed performance with risk sentiment and the US inflation data release moving the markets. The month on month Core CPI (excluding food and energy) for August was confirmed at 0.1% (0.3% expected, 0.3% previous) while the core CPI increased 4.0% on a year-on-year basis after advancing 4.3% in July. The yearly headline CPI change came in line with expectations (5.3%, 5.3% expected, 5.4% prior). Lower than anticipated inflation raised doubts about Fed’s taper intentions for this year. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
We have risk aversion in the air. This has driven money into JPY, CHF and USD with the JPY being the strongest currency since the London open yesterday. On top of the risk aversion, China’s August retail sales disappointment 2.5% y/y (7% expected, 8.5% prior) weighs on AUD. Risk aversion showed also in bond buying and drove the benchmark US 10 yr. Treasuries yielded down to 1.28%. Previous close: 1.33%.
Platinum has continued to slide being the weakest of the precious metals we follow. Gold is trading slightly higher than at the time of London open yesterday. USOIL and silver are mostly unchanged.
September is seasonally the weakest month in stock markets historically. This showed in yesterday’s trading. The S&P 500 (-0.57%), the DJIA (-0.84%) and the Nasdaq (-0.45%) all lost ground yesterday with almost all Dow 30 stocks and all the S&P 500 sectors closing in the red. See the above listing for the strongest and weakest stocks among the TIOmarkest equity CFDs.
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.
The Canadian inflation data release later on today is the most important risk event ahead today. For details on other important macroeconomic releases, see the TIOmarkets economic calendar here.
Canadian inflation data release later on today could create added volatility in USDCAD. The pair is 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.
AUDCHF is trying to reverse the downtrend. This is evident by the increased upside volatility and the fact that the pair rallied above the SMA(50). However, in order to reverse the downtrend, the pair needs to start creating higher reactionary lows above the 0.6513 low. This is, however, some 3.3% lower which means there’s plenty of room for the market to first correct lower. The pair just broke below the 23.6% Fibonacci level and is now trading right below a resistance level at 0.6748. The other key S&R levels for this market are 0.6513, 0.6800, 0.6824.
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
- CAD – CPI
- USD – Empire State Manufacturing Index
- USD – Industrial Production m/m
- USOIL – Crude Oil Inventories
For more information and details see the TIOmarkets economic calendar here.
Market News & Facts
- 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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