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Dollar hit as Fed pivot theme continues

The world’s reserve currency has turned lower this week as bad news in US data seems to be deemed as good news for risk assets.

Stocks are enjoying a 10%+ bounce from their lows two weeks ago which has seen selling in the dollar. This was especially the case yesterday as disappointing US consumer confidence and poor housing data combined to hit the greenback.

The US housing data is getting more attention as the surge in mortgage rates drags the housing market lower. Long-term 30-year mortgage rates are now above 6% having been below 3% just 12 months ago. We get new home sales numbers today, which may fall 15% month-on-month.

This may in time contribute to higher unemployment rates and further adds to the idea that the Fed will slow its tightening pace.

Markets have been desperate to put a higher probability of an earlier pivot and this kind of data adds more fuel to bargain hunters in markets.

EUR/USD threatening breakout

Along with the improved risk environment and dollar selling, lower natural gas prices may finally be having a positive effect on the single currency.

The euro is pushing out of the long-term bear channel that has contained price action all year.

Parity is being widely watched though the mid-July low at 0.9952 is also significant as a level of support/resistance.

EURUSD is pushing out of the long-term bear channel

This all comes ahead of the tomorrow’s ECB meeting in which another 75bp rate hike is widely expected.

A swathe of ECB officials has put their weight behind such a move so all eyes will be on President Lagarde and how hawkish her tone is. Markets expect peak rates close to 3% in the eurozone next year.

 

Focus on Bank of Canada rate hikes and guidance

Policymakers in Canada are set to deliver a sixth straight rate rise. But there is scope for some volatility as markets are pricing in a 75bp hike while analysts are torn between a 50bp and 75bp move.

Inflation is still elevated and employment has picked up again, but house prices are turning lower and the BoC business survey was downbeat.

Guidance will be key and whether the bank is preparing to lower the pace of hikes going forward.

This could weigh on the loonie, even though the CAD has been the best performer versus the dollar this year. We note that the Canadian dollar has the highest correlation of the G10 currencies with stock markets.

Technically, USD/CAD support is seen at 1.36 and then the October lows at 1.35. Any dovish commentary from the BoC could see prices move towards resistance at the 21-day SMA at 1.3708.

USDCAD to react to Bank of Canada guidance

 

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