According to the US Nonfarm Payrolls data, the US added only 194K jobs in September. Sentiment shifted from negative to positive, hitting the currency as markets rallied.
The EUR/USD is consolidating losses at its 2021 bottom and has room to fall further. The EUR/USD weekly forecast is bearish as the US dollar continues to grind higher across the board while worrisome Eur figures remain a concern.

As the globe battles to combat the epidemic, the EUR/USD pair dropped to a new 2021 low of 1.1528. Because the recovery is unequal throughout the world, resuming economic activity will confront significant obstacles and supply chain interruptions.

The week was jam-packed with statistics, culminating on Friday with the US Nonfarm Payrolls report release. Unfortunately, it was a big letdown, as the country only gained 194K new employment in September, far less than the 500K forecast. 

EURUSD W1 10 11 2021 1415

 

Following the announcement, the greenback came under selling pressure, but the EUR could not profit from the dollar’s wide weakening.
The German statistics were the most disappointing since the majority of them fell short of market forecasts. Factory orders were down 7.7% month over month in August, while industrial production was down 4%. The EUR/USD pair is still trading below 1.1600, and the weekly chart indicates that the pair is losing for the sixth week in a row. 

EURUSD D1 10 11 2021 1415

 

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USDJPY D1 08 30 2021 1418

 

USDJPY is champing at the bit of local resistance above 110.00 as EU and US yields have suddenly come alive here ahead of the Jackson Hole speech from Fed Chair Powell . Entirely unsure whether that speech will have major implications for the US treasury market in the near term, but if yields do pop back higher, we will likely suddenly have a different setup for USDJPY, which could go on to challenge its cycle top in the event the US 10-year treasury benchmark, for example, goes on to pop above the big 1.50% area (1.35% currently). The higher yield threat will need to fade to see the pair challenging back toward that 109.00 area that didn’t sustain the break earlier this month. The setup here echoes the triangulation in the price action back in Nov-Jan before US yields staged a major revival. Note the Ichimoku cloud levels in play here as well.  

USDJPY W1 08 30 2021 1419

 

 

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USDJPY has reversed fairly hard here, probably as US treasury yields were the chief driver of the original rally sprint to 111.50+ and the pair looked overextended as long US yields eased back and traded sideway, as the focus shifted to deleveraging in risky assets. A total reversal here is note the base case here and would take more downside  falling back below 110.00  with a coincident erasure of the recent pop higher in US yields at the long end of the curve. Barring a very ugly volatility event  which we by no means can do  the sights are set higher in the medium term, assuming the Fed is set to continue its path towards policy normalization. Still, it is interesting to note that a number of JPY crosses are sucking wind and poking back toward major support levels after this equity market consolidation
equity markets have entered the danger zone in volatility terms in which only binary outcomes seem possible  either a continued and possibly accelerating sell-off or a huge bounce of equal energy to the prior down move  or first the former followed by the latter. In FX, we have seen an odd “tick-tock” in which first it was only the US dollar that was ascendant on the sharp rise in US yields in the wake of the FOMC meeting, followed by a now more vicious and steep rally in the Japanese yen after USDJPY spiked to new highs, as US yields then calmed as risk deleveraging continued. If the risky asset sell-off extends with treasuries sidelined and even rallying, the JPY may edge out the US dollar as a safe haven, but this would likely prove only a short-term development as long as yields are set to rise further down the line, as is our base case.

USDJPY W1 10 04 2021 1505

 

Need to see the climax of this risk-off event in the rear view mirror before judging market potential here outside of the general idea that anything can happen and FX volatility, as  USDJPY implied volatility is still below 6.0%.

 

 

Brent oil dropped to the lower end of the $65 to $75 range, that we could see prevail for the remainder of the year. We see reduced risk of a slump below this range on expectations OPEC and friends may step in and announce measures to support the market, potentially by postponing agreed production hikes until a clearer demand picture emerges. Brent oil has been on the defensive this month since the number of Covid-19 cases in China and the U.S. began rising, thereby clouding the demand outlook in the world’s biggest importer and consumer of Brent. 

UKOil D1 08 23 2021 1351

 

Adding to current price risks, apart from demand concerns and the general level of risk adversity sending the dollar higher, was weekly data from the EIA showing US drillers, in response to the earlier price surge, are pumping the most crude in a year. In addition to an expected seasonal slowdown in demand, perhaps strengthened by the Covid-19 surge, and the market is suddenly looking less tight than what was expected just a few weeks ago. 

UKOil W1 08 23 2021 1343

 

 

 

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EURJPY launched a sharp rally on the risk in long yields, which also affect EU fixed income, as Bund yields. The stronger the mandate the likely center-left coalition gets in the German election outcome, the greater the potential for EU yields to rise and EU yield curves to steepen, supportive for the euro and a headwind for the JPY, especially as Japanese fiscal plans are seen as less JPY supportive and more likely to crimp Japan’s real yields, which have so far somehow escaped the developments elsewhere, but can’t defy gravity forever if energy prices continue rising. In any case, EURJPY deserves watching here as a function of the ability of the EU yield curve to continue to steepen in sympathy with any possible developments in the US yield curve and as a function of the German election outcome. We present the weekly bar as today’s close offers could see a weekly hammer candlestick. 

EURJPY W1 09 27 2021 1303

 

For a partial discussion on the likely outcome and the potential difficulties in forming a majority ruling coalition in the wake of the German election. Since the advent of the AfD and its 10+% result in the polls in 2017 and a likely similar result , majority coalitions are tough to build when neither side of the center is willing to consider working with the AfD. The “stoplight” coalition idea is much discussed, but the “yellow” FDP has a traditional liberal/supply side focused platform that looks incoherent compared to the Red/Green focus on higher wages and significant fiscal outlays.

In terms of how to trade the German election, the likely difficulty in forming a ruling coalition could make this a slow burn issue for months, but EURCHF upside optionality is still fairly inexpensive at 4.25% implied volatility for 3-month tenors if we get a surprisingly strong result and mandate for the Greens/Reds and a repricing much higher of EURCHF in the weeks and months to come. 

EURCHF W1 09 27 2021 1306

 

 

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The USD/CAD price analysis suggests further gains as the fundamental and technical pictures indicate an uptrend.

The USD/CAD soared to fresh daily highs near 1.2565 on Monday. The recent upsurge stemmed from the rise in coronavirus infection in Japan and downbeat Chinese important data. The weekly forecast for the USD/CAD pair is bullish. The contrast in the labor results of Canada and the United States drove the rise of the USD/CAD pair, achieving a weekly close above the 1.2580.

USDCAD D1 08 16 2021 1615

On the part of the Fed, signs of a possible reduction of asset purchase program are beginning to be seen after some important figures made statements related to this. Like the case of Fed Vice Chairman Richard Clarida, who commented that there could certainly be announcements at the end of the year about a gradual reduction.

On the Canadian side, unemployment statistics improved but at a slower than the estimated rate. The unemployment rate decreased 0.3% to 7.5% compared to 7.8% in June. However, the number of jobs created during the last month was 94,000, far from the estimate of analysts who predicted 177,500 new jobs for July.

USDCAD W1 08 16 2021 1616

 

 

 

EURGBP D1 09 13 2021 1307

 

The EUR/GBP dropped on Friday to 0.8519, the lowest level in three weeks, before rebounding back above 0.8530. The area around 0.8530 is the key short-term support, with a consolidation under that area opening the doors to 0.8505.

The ECB was about as in-line with expectations as possible, as the central bank delivered a “dovish taper” that was rather pre-announced already, given that Lagarde and company had announced that the pace of asset purchases would be “front-loaded” earlier this year. At the same time, the bank announced that it sought to maintain flexibility in the rate of purchases, theoretically allowing it to expand purchases again early next year if deemed necessary. There were a couple of small adjustments to the forecasts, with the GDP estimate for this year raised to 5.0% from 4.7% and the inflation forecast raised for this year through 2023 (to 1.5% ). That last adjustment is too small to indicate any concern that current high inflation levels will prove stickier than anticipated. The meeting was essentially a punt to the December meeting, which will have to see the bank rolling out a plan for how it will wind down the emergency QE after March of next year and transfer some percentage of that to the standard asset purchase plan to avoid a cliff edge. A new German government will likely loom large as well.

The ECB probably wanted to buy a bit more time before indicating taper plans to see how the first couple of months of fall and early winter shape up before taking next steps. EU sovereign bonds rallied on the meeting. 

EURGBP W1 09 13 2021 1306

 

The weekly chart shows the euro being rejected again from above the 0.8600 area and also from the 20-week moving average. The bias still favors the downside. Below 0.8500 the bearish pressure could raise, exposing the 0.8450 zone. The area around 0.8470 is a strong barrier.

On the upside, a weekly close clearly above 0.8600 should strengthen the outlook for the euro, pointing to more gains, targeting initially levels above 0.8700.

Pockets of strength remained with agriculture commodities such as sugar and wheat receiving a boost from what so far has been a very volatile weather season across some of the key growing regions of the world. Gas prices trading at a 2 ½-year high in the US and at record levels in Europe was another area that continued to exhibit strength amid tight supply at a time of strong demand, both raising concerns that stockpiles may not build sufficiently ahead of the peak winter demand period.

NGAS D1 08 09 2021 1357


Natural gas prices across the world remain bid on a combination of hot weather driving increased demand for cooling and rising demand from industry as the global economy bounces back from the pandemic. In the US, the price of Henry Hub is trading above $4/MMBtu, the highest price for this time of year in at least ten years on a combination of rising domestic demand and rising LNG exports. This comes at a time when production has struggled to pick up, especially due to the slow recovery in shale oil production, from which gas is a byproduct.

Much worse is the situation Europe where prices have reached record levels. An unexplained reduction in flows from Russia, combined with rising competition from Asia for LNG shipments, has made it harder to refill already-depleted storage sites ahead of the coming winter. These developments have led to rising demand for coal, thereby forcing industrial users and utilities to buy more pollution permits, the price of which are already trading at record prices. All in all, these developments have led to surging electricity prices which eventually will be forced upon consumers across the continent, thereby causing a major headache for governments and potentially challenging the political will to decarbonize the economy at the agreed rapid pace.

NGAS W1 08 09 2021 1356

 

Concerning the RBA monetary policy decision, Bloomberg's latest poll of 16 economists said, “Australia’s central bankers are set to revisit the question of whether to delay a planned taper of bond purchases as a worsening outbreak of the delta variant dims prospects of a rapid economic rebound."

“Reserve Bank of Australia will defer scaling back quantitative easing on Tuesday,” Ten of 16 economists surveyed mentioned per Bloomberg.

The piece highlights the RBA's recent readiness to scale back weekly bond purchases from September to A$4 billion ($3 billion) from A$5 billion while also citing the challenges for the Aussie central bank going forward. 

AUDUSD W1 09 06 2021 1309

 

AUDUSD has now completed a proper V-shaped reversal of its recent sell-off, which may not lead immediately to further gains toward the next key 0.7500 area, but is a kind of exclamation point encouraging the view that we have seen the lows for now after the run down to the 0.7105 area lows before this rally emerged. A record Australian trade surplus data point overnight helped remind us of the longer term shift in the current account fundamentals, which have accelerated in the Aussie’s favour over the last year, with the Covid outbreak and the RBA’s pedal to the QE metal providing off-setting pressure until the last week or so. This rally  also in the crosses  suggest that the AUD underperformance could be set to ease for a while here and mean revert to the positive side. 

AUDUSD D1 09 06 2021 1308

 

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The Bank of England meets on Thursday, and though COVID cases in the country appear to have peaked for this wave , the central bank is unlikely to make any immediate changes to policy. That said, there have been some hawkish sentiments emerging from the Monetary Policy Committee in recent weeks following a jump in inflation to 2.5% in June, the highest reading in three years and above the central bank’s 2.0% target. As such, traders will be watching to see if the BOE raises its inflation forecasts moving forward, hinting that the price pressures may be less transitory than expected. Finally it’s worth noting that the UK furlough scheme winds down at the end of September, so it will be interesting to see if the central bank acknowledges the potential for the labor market to weaken in the coming months. 

GBPUSD D1 08 02 2021 1420

GBPUSD has pulled back sharply from its near-death experience below the prior major lows around 1.3670 and is now pushing up close to . Given its tight correlation with the risk-off, risk-back-on episode starting around mid-month in July, the 1.4000 level could prove a tough to crack if the sense of foreboding, turns into a significant rout in risk sentiment, although there are other supports for this move, including the generally widening spread in short rates in the UK’s favour in recent months, which has the spread near the cycle highs and the highest level since….2015.

GBPUSD W1 08 02 2021 1421

 

 

 

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