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Stocks off lows as yields ease back; BOC and ECB meetings eyed

Fawad Razaqzada Fawad Razaqzada 08/09/2021
Stocks off lows as yields ease back; BOC and ECB meetings eyed Stocks off lows as yields ease back; BOC and ECB meetings eyed
Stocks off lows as yields ease back; BOC and ECB meetings eyed Fawad Razaqzada
  • Delta and expiring government support among factors hurting sentiment
  • Lagarde likely to delay ECB PEPP taper talks
  • BOC likely to stay on hold
  • USD/CAD chart to watch
 
Yesterday saw risk-off hit cryptocurrencies the hardest, while gold and indices retreated as well. The dollar rallied as yields rose. Today, bond yields have fallen back a tad, and this has helped the European indices and US futures to bounce off their earlier lows. Gold was also finding some mild support, but the likes of EUR/USD and AUD/USD had moved further lower. The dollar index was up for the third consecutive day, and it had more than made up its NFP-related losses. It was trading near levels last seen since the Jackson Hole summit when Jerome Powell watered down the Fed’s hawkish commentary by refusing to provide the roadmap for tapering QE (although confirmed it could be announced before the end of the year). So, the dollar was trading at around a pivotal level today, which means it could possibly ease back down given we haven’t had any significant news so far this week to justify the rally.
 
Delta and expiring government support among factors hurting sentiment
 
There isn't one specific factor providing a drag on risk sentiment at the moment, so things could improve unexpectedly as we head into the second half of the week - just as the drop happed unexpectedly for many risk assets on Tuesday. Among some of the factors weighing on sentiment, the persistence of the Delta variant of Covid is still a big risk facing the global economy. With various government stimulus measures slowly coming to an end around the world, the fear is that if the virus persists longer then it could hurt the recovery and cause further disruption to supply chains, thereby lead to higher inflation. Indeed, in the US, around 8.9m jobless people lost unemployment benefits on Monday as two government programs expired – one that provided aid to self-employed and gig workers, and another for those who have been unemployed more than six months. The $300 weekly supplemental unemployment benefit also ran out. We could see consumer spending fall as a result in the weeks ahead.
 
Lagarde likely to delay ECB PEPP taper talks
 
The market is also looking forward to the European Central Bank meeting on Thursday. Traders are unsure what exactly to expect from the ECB. Will Christine Lagarde dismiss talks of early tapering of PEPP or appear more hawkish in light of the improvement in Eurozone data and pickup in inflation, and try to convince markets that reduced PEPP flows would be appropriate going forward?
 
Thursday’s policy meeting could provide fresh impetus for European stocks and the single currency. Lagarde’s tone will be scrutinized very closely by the markets, and if she says anything that is slightly different to her previous dovish remarks then the euro could make a more decisive move higher on Thursday, while European stocks will probably show a mild reaction as they will be influenced more by sentiment towards risk in general at the time. For now, the euro and European indices remain lower on the day, but within their prior ranges. The key challenge for Lagarde is to prevent bond yields from rising sharply, so she will need to convince investors that when the time is right to unwind ECB’s massive monetary stimulus, the central bank will do so without impacting the economic recovery. Judging by her previous speeches and conferences, I can’t see why she would change her tone significantly.
 
BOC likely to stay on hold
 
 
Meanwhile, the Bank of Canada is making a policy decision later today at 15:00 London time. The BOC is widely expected to keep its policy unchanged. There is no press conference scheduled and the central bank will provide its next quarterly update on growth and inflation forecasts in October. So, it may be more appropriate to wait until the next meeting on October 28 before reducing QE purchases further from the current C$2 billion per week.
 
USD/CAD chart to watch
 
The USD/CAD is the chart to watch today given the BOC’s policy decision and the fact that the Dollar Index is testing potential resistance, with Canadian jobs data due on Friday.
 
USDCADSource: ThinkMarkets and TradingView.com
 
The current bias is slightly bullish given the breakout above the previous resistance shaded area, shown on the 4-hour chart. If the shaded region fails to offer support, we could see a quick drop back towards 1.25 support and potentially lower. So, watch the 1.2625-1.2650 area closely.
 
Alternatively, if support holds and price breaks 1.2700 resistance, then this could pave the way towards 1.2800.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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