USD spikes on growth concerns & Tapering; USD/CAD risks a move above 1.30
US Dollar: Weekly Trading Range (92.70 – 94.30)
Spot
DXY93.59
Week ahead bias
Bullish
Weekly range
92.70 – 94.30
1 month target
94.50
The dollar is being driven higher by the combined forces of a Fed moving towards a taper and the re-assessment of global growth prospects on the back of the Delta Variant. The former will be in focus this week as the Kansas City Fed holds its Jackson Hole symposium over Thursday and Friday. Most expect the Fed to shed light on its tapering decision, which could be announced as early as September and started in October. Expect the dollar to stay bid into the Jackson Hole event risk.
The local data calendar sees the August PMI reading, July home sales data, 2Q GDP revisions and 2Q personal consumption data, all of which should be over-shadowed by the Jackson Hole event.
Canadian Dollar: Weekly Trading Range (1.2750 -1.3030)
Spot
USD/CAD1.2851
Week ahead bias
Bullish
Weekly range
1.2750 -1.3030
1 month target
1.2600
The CAD was hard hit last week despite a spike in inflation in July. The loonie lost 3% against the greenback as the CAD flirted with multi-month lows as a result of the global risk-off mood.
The USD/CAD could push toward the 1.3000 level if the USD is supported by tapering talk around the Jackson Hole conference. There could also be additional signs of weakness in the oil market or a further drop in risk appetite which could further weaken the loonie. Any signs of CAD stabilizing will likely be determined by the ability for oil to survive the current downturn. The USD/CAD is currently overvalued by approximately 2.8% which may suggest most of the negative news is already priced in.
Euro: Weekly Trading Range (1.1600 - 1.1750)
Spot
EUR/USD1.1673
Week ahead bias
Bearish
Weekly range
1.1600 -1.1750
1 month target
1.1700
Broad dollar strength is keeping EUR on a weaker footing. The EUR is feeling the heat of global slowdown fear with the EUR/USD level of 1.1600 looking like a clear risk this week as we approach Jackson Hole.
Data wise in the EZ the highlight will be today’s flash PMI releases and then the German Ifo on Wednesday. Recent industry surveys point to continuing expectations of supply chain disruptions – potentially lasting into 2Q22. Thursday also sees the ECB release minutes of its 21-22 July meeting. Investors will look out for any clues as to what the ECB will do with PEPP at its 9 September meeting. With only 5bp of ECB tightening priced in over the next three years, it is hard to see these minutes driving EUR money market rates any lower.
British Pound: Weekly Trading Range (1.13450 – 1.3730)
Spot
GBP/USD1.3621
Week ahead bias
Bearish
Weekly range
1.3450- 1.3730
1 month target
1.3800
The USD rally has sent the GBP/USD even lower with the possibility of a break below the 1.3570 July low in the week ahead. After today’s PMIs there won’t be another market moving data for a few weeks until the growth/production figures on September 10th. Any stabilization in the Pound will have to come from improvements in the global risk environment.
In the week ahead, the Jackson Hole symposium will be the key driver, and with the risks skewed towards another leg lower in risk and leg higher in the dollar, the pound may struggle to recover.
Currency Chart
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