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Weekly Currency Update

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Liberals nor the Conservatives are likely to secure a full majority

Liberals nor the Conservatives are likely to secure a full majority

US dollar: Weekly Trading Range (92.10 – 92.90)

Spot
DXY 92.50
Week ahead bias
Neutral
Weekly range
92.10 – 92.90
1 month target
92.00
  • Markets have returned to long dollar positions this week as markets looked again with some concern on the potential combination of monetary tightening at a time when the Delta-variant spread looks likely to hinder the global economic recovery.
  • As we enter the Fed’s blackout period ahead of the 22 September FOMC announcement, all focus in the week ahead in the US will be on August CPI numbers. Recent Fed communication has not diverged from the view that inflationary pressures have a transitory nature, so even in the event of another rise in inflation we doubt Fed rate expectations– and by extension, the dollar - will be particularly impacted. Markets have likely acknowledged that the disappointing jobs figures were the most crucial piece of data before the Fed meeting, and other releases this week (industrial production, retail sales, University of Michigan sentiment) may also have limited impact. Markets may take a wait-and-see approach ahead of the very busy 20-24 Sept suggesting a quite and rangebound trading week ahead.

Canadian Dollar: Weekly Trading Range (1.2500 – 1.2700)

Spot
USD/CAD 1.2360
Week ahead bias
Neutral
Weekly range
1.2550 – 1.2700
1 month target
1.2400
  • The CAD was supported on Friday with strong jobs data (+90K employment change) for August which cemented the view that the Bank of Canada will continue its assets purchase tapering at an aggressive rate. Most expect QE in Canada to be fully unwound by 4Q2021.
  • The elections are set to remain the focus this week with only a week to go before the vote. Most analysts continue to suggest that the CAD is currently discounting political risk as polls show neither the Liberals nor the Conservatives are likely to secure a full majority. This week’s CPI data will be the main highlight. An above consensus read will further support expectations on the BoC. For now political risk is likely to weigh on the CAD but as those dissipate, expect the loonie to trade well below the 1.2500 mark as we approach the end of the year.

Euro: Weekly Trading Range (1.1800 – 1.1870)

Spot
EUR/USD 1.1830
Week ahead bias
Neutral
Weekly range
1.1800 – 1.1870
1 month target
1.1900
  • The September ECB meeting marked a win as policymakers finally caught up with reality and modestly reduced the pace of asset purchases. That was, however, largely priced in by the market and the EUR failed to realize any significant benefit. After all, the overall policy stance of the ECB remains firmly on the dovish side and markets are reluctant to see the past week’s move as the first step in a sustained policy-normalization path.
  • There are no data drivers in the Eurozone this week. We could simply see the pair oscillate within its recent 1.1800/1.1900 trading range as we head into the 22 September Fed meeting.

British Pound: Weekly Trading Range (1.3800 – 1.3980)

Spot
GBP/USD 1.3850
Week ahead bias
Mildly Bullish
Weekly range
1.3800 – 1.3980
1 month target
1.3800
  • The pound remained unfazed despite some softer than expected growth data while also containing the impact from the BoE’s cautiously optimistic comments last week.
  • As we get closer to the BoE’s policy announcement on the 23rd, the GBP’s sensitivity to domestic data releases is likely to increase. This week’s data calendar is packed in the U.K. Job figures are out on Tuesday while Wednesday brings in CPI numbers for August. Most expect the CPI data to be more pronounced with higher inflation numbers. Later in the week, retail sales will also be in focus. We think the data flow should prove by-and-large supportive for the pound and we could see the GBP/USD break above 1.3900.

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