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EUR / USD

 

The Euro-Zone Sentix investor confidence index dipped further to -38.3 for October from -31.8 previously which was weaker than consensus forecasts of -34.7 and the weakest reading since May 2020. According to Sentix, in addition to the economic worries, there is now also an increasing probability of an escalation of the military conflict in Ukraine. It also expressed fears over the global outlook with only China appearing to be stabilising somewhat at the current time.

The Euro was subjected to renewed selling after the European open on Monday with fresh fears surrounding the Ukraine situation as Russia launched a high number of missiles on cities across Ukraine. Although many were intercepted, there were still a large number of strikes with markets uneasy over the threat of further escalation.

The latest data on gas storage levels in Europe was more encouraging with mild weather allowing a further increase, lessening immediate fears surrounding this winter period. The Euro dipped to lows near 0.9680 before recovering some ground to trade above 0.9700 with an element of short covering.

There was choppy trading with the Euro edging back above 0.9700 as US equities pared losses, but confidence dipped again later in the session.

Risk appetite deteriorated on Tuesday with defensive US currency support and the Euro dipped to 0.9680 as the dollar posted another round of gains.

 

JPY

 

The latest Chinese data recorded the largest number of locally transmitted covid cases for 7 weeks reinforcing reservations over the outlook.

The US employment cost index strengthened to 120.17 for September from 119.06 the previous month. Treasury markets were closed for the Columbus Day holiday, but equity markets dipped lower after the New York open. The dollar overall maintained a strong tone with highs around 145.75 in early US trading.

Chicago Fed President Evans stated that the policy rate needed to increase to just above 4.50% by early next year and remain there as the central bank takes stock. Evans added that without a period of restrictive policy, inflation would not fall to anything near the 2% target.

Fed Governor Brainard stated that monetary policy will be restrictive for a while and that cumulative tightening will take time to bring inflation down. She noted that the Fed should proceed deliberately to assess how the economy, employment and inflation are adjusting in order to inform the path of policy rates.

Brainard also stated that premature easing is a risk, but risks may become more two-sided at some point. The dollar edged slightly lower from highs to around 145.65.

Japanese Finance Minister Suzuki stated that he will respond appropriately to excess FX moves and markets were wary over potential intervention as the dollar approached the 145.90 level which triggered intervention in September. Risk appetite remained vulnerable with fresh concerns over Chinese coronavirus developments. Higher US yields, however, boosted the dollar with the 10-year yield close to 4.00% and the dollar held firm around 145.80 and close to 24-year highs.

 

GBP

 

Sterling posted gains after the European open following the Bank of England statement that it would double the maximum amount of bond purchases this week and also provide an additional facility to provide market liquidity which would help protect the banking sector and underpin pension funds.

Sterling briefly traded above 1.11 against the dollar, but was unable to sustain the move and quickly retreated, especially with vulnerable risk conditions.

The government announced that the medium-term fiscal plan would be brought forward to October 31st which also provided only a brief lift to the UK currency.

Overall, Sterling dipped to lows close to 1.1020 before a recovery to 1.1065.

BRC data recorded a like-for-like retail sales increase of 1.8% in the year to September, but volumes declined and overall Sterling sentiment remained very fragile. The UK labour-market data overall was stronger than expected with faster growth in earnings and lower unemployment while the Bank of England announced that it would also buy index-linked bonds. Sterling failed to sustain an initial tick higher and dipped to test the 1.1000 level against the dollar with the Euro advancing to near 0.8800.

 

CHF

 

Swiss sight deposits declined sharply to CHF639.3bn in the latest week from CHF669.6bn the previous week which was the second largest decline in the last 11 years after the record drop last week. The sharp decline reinforced expectations that the National Bank wanted to raise money-market rates by draining liquidity and was potentially engaged in intervention to strengthen the Swiss currency. The franc initially posted gains, but lost some ground as risk appetite attempted to recover. The Euro edged back above 0.9700 with the dollar challenging 1.0000 and the dollar traded just above 1.0000 on Tuesday.


Technical Levels 

111022 Tech

Calendar 111022 Cal

 

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