Foreign exchange trading reminder on October 6: The U.S. dollar rises with U.S. bond yields, and commodity currencies continue to strengthen

On Tuesday (October 5), the U.S. dollar index rose 0.18% to 93.97, and the 10-year U.S. Treasury yield rose 5 basis points to 1.53%. Due to concerns about rising energy prices and aggravating inflation, traders continued to release key employment reports this weekend. Be cautious, the report may provide clues for the Fed's next move.

Mazen Issa, a senior foreign exchange strategist at TD Securities, wrote in the report that the foreign exchange market has finally caught up with the changes in the interest rate background. Long-term interest rates in the United States should continue to adjust upward, which should help the dollar’s rally to continue until the end of the year, although it may be possible in the short term There will be a mild seasonal fall.

Analysts said that for the remainder of the week, foreign exchange market trends may remain basically moderate, as investors are waiting for the latest data on the US job market, which may help provide clues as to whether the Fed will begin to reduce the scale of asset purchases before the end of the year.

John Doyle, vice president of transactions at Tempus, a foreign exchange payment company, said that non-agricultural employment data has always been a factor driving market trends. If the data does not perform well, it will provide dovish support to the Fed, but if the data has surprises, coupled with the increase in inflation due to the energy crisis, it will increase the pressure on the Fed to begin to reduce the scale of debt purchases and help the US dollar.

Doyle said that overall, the U.S. dollar is trying to find a new range after its strong rise at the end of September. In my opinion, the US dollar has risen excessively, and we have seen exit positions in the past three to four days.

However, others expect the dollar to resume its upward trend. Shaun Osborne, chief foreign exchange strategist at Scotiabank, said in a report that as the Fed may soon begin to reduce the scale of asset purchases, once the current possible consolidation correction for the dollar ends, the conditions for the dollar to continue to strengthen are ripe.

As the U.S. Congress raises the debt ceiling to avoid the historic debt default deadline approaching, concerns about the debt ceiling begin to disturb investors.

The euro fell 0.20% to 1.1598 against the dollar; the euro regained some ground lost in early trading with the stock market; traders said that US dollar buying in corporate accounts during London trading hours weighed on the euro, including the 2.5 billion euros placed on DTCC with 1.1605 orders. Gold delivery forward contracts.

The dollar rose 0.48% against the yen to 111.46; the Tokyo Consumer Price Index rose for the first time since July 2020. The pound rose to a nearly three-week high against the euro, rebounding from last week’s plunge, as traders turned their attention to the prospect of raising interest rates in the UK.

The US dollar fell against the Canadian dollar by 0.3% to 1.2546, and then narrowed its decline; as oil prices rose, the US dollar fell against the Canadian dollar for the fourth consecutive day. Canada's trade surplus expanded in August due to increased energy exports. The dollar fell 0.4% to 8.5355 kronor against the Norwegian krone, the fourth consecutive day of decline.

The Australian dollar rose 0.15% to 0.7292 against the US dollar, and the Reserve Bank of Australia reiterated that it does not expect to raise interest rates before 2024. The New Zealand dollar fell 0.09% to 0.6963 against the US dollar.

Wednesday preview

time	area	index	The former value	Predictive value
17:00	Eurozone	August retail sales monthly rate (%)	-2.3	0.8
17:00	Eurozone	Annual retail sales rate in August (%)	3.1	0.4
20:15	America	Number of ADP employed in September (10,000)	37.4	43
22:30	America	Changes in EIA crude oil inventories in the week ending October 1 (10,000 barrels)	457.8	70
22:30	America	Changes in EIA refined oil inventories in the week ending October 1 (10,000 barrels)	38.4	-75
22:30	America	Changes in EIA gasoline inventories as of the week of October 1 (10,000 barrels)	19.3	40

09:00 The Reserve Bank of New Zealand announces interest rate resolution
21:00 2021 FOMC voting committee, Atlanta Fed President Bostic delivers a speech on the "rural economy"

Summary of Institutional Views

Citibank: Three major factors may cause the euro to fall slightly against the dollar

Citibank economists predict that based on three factors, the world’s most popular currency pair will decline slightly and turn slightly bearish on the euro against the dollar, because the real yields of the United States and the European Union are high, and the upside risk is higher than the downside risk. Major emerging markets National growth concerns and the negative impact of high natural gas and oil prices on the terms of trade are not conducive to the euro. The important support is between 1.1495-1.1412-1.1422, but it may not reach such a low point.

Wall Street warns that U.S. debt deadlock risk is underestimated, Yen may win in Chengda

Wall Street strategists are beginning to realize that financial markets may be too optimistic about the recent U.S. debt ceiling deadlock, and they warn that the market may be turbulent in the future. Strategists at Wells Fargo said the risk premium on Treasury bills may increase. If the debt deadlock cannot be resolved when the government's cash-out deadline is approaching, the safe-haven currency yen may outperform other assets.

Investors underestimated the impact of the debt ceiling, and the deadlock could plunge the market into turmoil like 2011. The debt ceiling issue in 2011 caused the S&P to downgrade the U.S. rating from AAA that year. The long-term U.S. Treasury yield and the decline in the U.S. stock market expanded. The European debt crisis also had a certain impact on the market. Wells Fargo doubts whether there will be a rating company downgrading the U.S. rating, but Fitch said last week that even for securities other than Treasury bonds, if the Treasury Department delays payment or defaults, the U.S. AAA status may also be threatened.

Wells Fargo said that if Fitch downgrades the U.S. rating before the debt ceiling is resolved, the 10-year yield will fall by 15 to 20 basis points in one or two days, and the difference between the 2-year and 10-year yields will shrink by 10- 15 basis points. The yen may benefit from any market turmoil, and customers who have short-term (no more than one month) exposure to the yen or are interested in investing should be prepared for a stronger yen.

Foreign Trade Bank: Sterling may face a double shock

VTB pointed out that from the data point of view, the United Kingdom is currently "overheating", wages and unit labor costs have accelerated, and the labor market is facing tremendous pressure. Like other countries, with the end of the new crown pneumonia crisis, the United Kingdom has also been affected by the rise in commodity prices. In particular, the impact of rising energy prices, but Brexit has also caused the following problems: supply problems (decreased road transportation), the number of workers from the EU has dropped, which has put pressure on the labor market, and companies continue to face serious recruitment difficulties. The employment rate is declining; when calculating annual changes, taking into account the shock in the second quarter of 2020 and the impact of this shock on the second quarter of 2021, data on wages, productivity and unit labor costs are difficult to interpret, but can be revised The 2021 figures are used to measure the downward trend in 2020, and then look at the changes in wages; unit labor costs, this trend is expected to accelerate in 2021.