Risk Appetite Eases Ahead of Fed Events, Merkel Lifts the Pound

EQUITY MARKETS CORRECT LOWER AHEAD OF FED MINUTES AND JACKSON HOLE

The dollar traded lower against most of the other G10 currencies on Tuesday and during the Asian morning Wednesday. It underperformed the most against GBP, CHF and JPY in that order, while it eked out some gains versus NZD and NOK. The greenback was found virtually unchanged against SEK.

USD/CAD — TECHNICAL OUTLOOK

USD/CAD continues to form higher lows, while trading above a short-term upside support line taken from the low of July 18th. But we can see that the pair is struggling to overcome its key resistance barrier at 1.3345. We need to see a clear break through that barrier before we could get comfortable with further upside.

POUND RALLIES ON MERKEL’S BACKSTOP REMARKS

Back to the currencies, the pound was found as the main G10 gainer this morning and responsible for that was Germany’s Chancellor Angela Merkel. Yesterday, during the European afternoon, Merkel said that the EU would think “practical solutions” on the Irish backstop, raising some hopes that the EU and the UK could eventually work things out in order to avoid a disorderly exit on October 31st. However, she also noted that the Withdrawal Agreement would not be re-opened and that she was referring to the political declaration of the EU-UK future relationship.

GBP/CHF — TECHNICAL OUTLOOK

After last week’s rebound from around the 1.1674 zone, GBP/CHF is trying to recover some of its losses by slowly pushing to the upside again. This may be somewhat of a good sign for the bulls, but let’s not forget that the pair is still trading below a medium-term tentative downside resistance line taken from the highest point of May. If the rate makes its way towards that line but fails to break above it, we will class that move higher as a temporary correction before another leg of selling. This is why for now, we will take a cautiously-bearish approach.

AS FOR THE REST OF TODAY’S EVENTS

Apart from the Fed minutes, in the US, we also have the existing home sales for July and the EIA (Energy Information Administration) weekly report on crude oil inventories. Existing home sales are expected to have rebounded 2.5% mom after sliding 1.7% in June, while the EIA report is forecast to show a 1.889mn barrels slide, after a 1.580mn increase the week before. That said, bearing in mind that the API report revealed a 3.500mn inventory build, we see the risks surrounding the EIA forecast as tilted to the upside.

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