US Dollar Index rose to 2-day highs near 94.20 ahead of data

• DXY starts the week on a positive note above 94.00.
• US 10-year yields cling to gains around 1.60% on Monday.
• Industrial Production, NAHB Index, Fedspeak come up next.
The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, begins Monday’s session on a positive footing around 94.20.

US Dollar Index looks to data, yields

The index regains composure and upside traction after three consecutive daily pullbacks, including the corrective downside from new 2021 highs past 94.50 recorded on October 12.
The move higher in the index comes in tandem with the recovery in US yields, where the front end of the curve flirts with the 0.42% level and the belly surpasses the 1.60% yardstick so far on Monday.

The dollar, in the meantime, appears well supported by solid prospects for a tapering announcement as early as at the November meeting, while Fed speakers have been also intensifying their support to this view particularly since the September FOMC event.
In the US data sphere, Industrial and Manufacturing Production figures are due later in the NA session seconded by Capacity Utilization, the NAHB Index and TIC Flows.

What to look for around USD

The index corrected lower following new 2021 highs past 94.50 on October 12, although the bearish move has so far met decent contention near 93.70. Supportive Fedspeak, an anticipated start of the tapering process, higher yields and the rising probability that high inflation could linger for longer continue to prop up the sentiment around the buck for the time being and keep sustaining the case for the resumption of the uptrend in DXY in the relatively short-term horizon.
Key events in the US this week: industrial Production, NAHB Index (Monday) – Building Permits, Housing Starts (Tuesday) – Initial Claims, Philly Fed Index, CB Leading Index, Existing Home Sales (Thursday) – Flash Manufacturing PMI (Friday).

Eminent issues on the back boiler: Persistent uncertainty around Biden’s multi-billion Build Back Better plan. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. Debt ceiling debate. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevels

Now, the index is gaining 0.10% at 94.16 and a break above 94.56 (2021 high Oct.12) would open the door to 94.74 (monthly high Sep.25 2020) and then 94.76vant le (200-week SMA). On the flip side, the next down barrier emerges at 93.75 (weekly low October 14) followed by 93.67 (monthly low Oct.4) and finally 92.98 (weekly low Sep.23).


Oil: No justification for $100 – OCBC

WTI and Brent are over $82/bbl and 84/bbl, respectively. How much higher can oil go? Howie Lee, Economist at OCBC Bank, remains highly sceptical about $100 oil.

Pre-shale days are far away

“Many are looking at oil’s price chart and pointing out the lack of notable resistance levels from here to $100 for their $100-oil justification. But to do that demonstrates a lack of understanding of the oil market structure. The era of $100 oil was before the US shale boom and stocks were way tighter than what they are now.”
“Despite the current stock tightness, stocks are still not as tight as the pre-shale era – hence, it does seem ambitious to suggest prices return to pre-shale days.”

“If implied gasoline consumption increases from 9,750kbpd to 10,500kbpd on a sustained basis (+8%), or commercial oil inventories fall by 70mn barrels to 350mn barrels (-17%) then that $100 theory may have a chance – but these are huge hurdles that I am not particularly optimistic about. On that lack of optimism, it appears that this is as high as the oil market may go – Brent at $85, WTI at $80 – with the potential for a slight overshoot by $3- $5/bbl.”


EUR/GBP to extend its slump towards the 0.8385 mark – SocGen

For EUR/GBP, the close below 0.8450 on Friday is technically significant. Economists at Société Générale are pointing towards persistence of downward momentum with next support seen at 0.8385.

EUR/GBP to edge lower towards projections of 0.8385

“Holding below 0.8550, EUR/GBP could head lower towards projections of 0.8385.”

“Lower band of the consolidation zone since 2016 at 0.8300/0.8270 and 0.8200 are next significant support levels.”


USD/CNH faces further retracement near term – UOB

According to FX Strategists at UOB Group, losses in USD/CNH could accelerate on a break below 6.4240.

Key Quotes
24-hour view: “We highlighted yesterday that the weakness in USD could ‘retest the 6.4240 level before stabilization can be expected’. However, USD traded between 6.4273 and 6.4391 before closing at 6.4350 (+0.10%). The quiet price actions are viewed as part of a consolidation and USD is likely to trade sideways for today, expected to be within a range of 6.4280/6.4480.”
Next 1-3 weeks: “There is not much to add to our update from yesterday (14 Oct, spot at 6.4340). As highlighted, downward momentum is beginning to build but USD has to close below 6.4240 before a sustained decline can be expected (next support is at 6.4100). The chance for USD to close below 6.4240 is quite high as long as it does not move above the ‘strong resistance’ level (currently at 6.4540) within these few days.”


The outlook for USD looks promising in 2022 – HSBC

The US dollar has been transitioning from a weaker to stronger state this year. In the view of economists at HSBC, the USD will likely remain resilient, amid slowing global growth and the Fed’s forward guidance on rate hikes.
The USD’s modest strength looks set to persist in 2022
“Yet, there is clearly some concern about the poor mix of slowing global growth with stickier inflation.”
“In our view, ‘stagflation lite’ – a lighter version of the 1970s stagflation – is occurring. We believe that this still plays to the advantage of the USD – one of the ‘hardest’ currencies.”
“A more serious form of stagflation is not our base case; however, if the markets increasingly fear this scenario, the USD should also be primed to benefit.”


EUR/USD comes under pressure below 1.1600, looks to US data


• EUR/USD starts the week on the back footing.
• Risk-on sentiment dented after mixed Chinese data.
• US Industrial Production figures next on tap in the docket.
The European currency remains under pressure and now drags EUR/USD to the 1.1570 region at the beginning of the week.

EUR/USD remains capped above 1.1600

EUR/USD loses ground for the second session in a row on Monday on the back of the continuation of the recovery in the greenback.
In fact, higher US yields sustain the upside move in the buck and encourages the US Dollar Index (DXY) to retake the 94.00 yardstick and above at the beginning of the week. Same path follows yields of the German 10-year Bund, which add to Friday’s advance and reach the -0.12% region.
The pair looks offered against a weak backdrop in the risk complex after Chinese GDP figures showed the economy expanded 4.9% YoY in Q3 and 0.2% inter-quarter, both prints coming in short of estimates. In addition, the jobless rate ticked lower to 4.9%, Retail Sales expanded more than expected 4.4% in the year to September and Industrial Production expanded below forecast at an annualized 3.1% also in September. Nothing scheduled in the euro calendar on Monday should leave all the attention to the US docket, where Industrial Production figures and the NAHB Index will be in the centre of the debate.

What to look for around EUR

Despite EUR/USD managed to regain the key barrier at 1.1600 the figure and beyond during last week, it was unable to close any session at/above it. As usual in past weeks, dollar dynamics are expected to keep dictating the price action around spot for the time being, where tapering chatter remains well in centre stage. In the meantime, the idea that elevated inflation could last longer coupled with the loss of momentum in the economic recovery in the region, as per some weakness observed in key fundamentals, are seen pouring cold water over investors’ optimism as well as bullish attempts in the European currency.

Key events in the euro area this week: Final EMU CPI (Wednesday) – Preliminary PMIs in the euro zone (Friday).
Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Sustainability of the pick-up in inflation figures. Probable political effervescence around the EU Recovery Fund. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the euro. ECB tapering speculations.


USD/CAD to slow down its decline in the week ahead – ING

CAD’s rally continued this week, with USD/CAD breaking decisively below 1.24. Economists at ING believe USD/CAD downside potential should be more contained in the week ahead.
Inflation set to confirm the need for tapering
“We think that a headline rate around 4.0% should allow markets to further reinforce their view around the prospect of the Bank of Canada ending QE by year-end. Any above-consensus read may fuel speculation that the Bank will start tightening earlier in 2H22 and add support to CAD. Still, we don’t think the USD correction has long legs, so USD/CAD downside potential should be more contained in the week ahead.”
“One topic that should attract increasing market interest is the BoC mandate, which is due for renewal by the end of this year. We are inclined to think the current inflation target (2%, with a +/- 1% tolerance band) will be renewed, although there is some speculation it could be made more flexible, like in the US.”