FX Daily: Profit-taking ahead of the weekend?

Commodity currencies are most vulnerable to any profit-taking
Philip Wee15 Oct 2021
    Photo credit: Unsplash Photo

    DXY stayed around 94.0 again after it hit a new year’s high on Tuesday. Dow, S&P 500 and Nasdaq Composite rallied 1.6% to 1.7% and the US 10-year treasury yield fell a third session to 1.511%. Investors focused on better-than-expected US corporate earnings and brushed off the higher US CPI and PPI inflation readings for September. Investors reckoned that earnings will be fine on robust sales offsetting the shortages in goods and labor. In this regard, the market welcomed the fall in initial jobless claims to 296k for the 8 October week, its first sub-300k reading since March 2020. In this regard, the weak advance retail sales expected today could also lead to profit-taking ahead of the weekend. Consensus expects retail sales to contract 0.2% MoM in September after a 0.7% increase in August. 

    Investors also believe that the Fed needs to act on the high inflation that has started to fuel wage pressures. Today, the University of Michigan Survey of Consumers is set to report another increase in 1-year inflation expectations to 4.7% in October from 4.6% a month earlier. The level is consistent with the 4.6% increase in average hourly earnings for September. Also, the 4-week moving average of initial jobless claims has stopped rising and fell, and if sustained for the rest of the month, could see nonfarm payrolls bounce again after the last two misses. Taking part in a monetary policy panel discussion today, New York Fed President John Williams, a prominent voice on the FOMC, believes that the US labor market will stay strong in the next year or so.

    If profit-taking sets in on stock markets today,expect some payback for commodity currencies (AUD. NZD and CAD) or the week’s top performers. GBP failed to punch above 1.37 and could gravitate to 1.36 again. The Bank of England monetary policy committee is split in the middle over high inflation and slow growth. The BOE is unlikely to act at its next meeting on 4 November before the 3Q GDP report on 11 November. USD/JPY is eyeing a break above 115 ahead of Japan’s general election on 31 October. Prime Minister Fumio Kishida is pushing for big fiscal stimulus to fight deflation and revive the economy with the Bank of Japan’s backing on monetary policy.


    Philip Wee

    Senior FX Strategist - G3 & Asia
    [email protected]

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