Volatility came back into the forex markets on the back of the UK budget and the Bank of Canada’s policy changes. Tomorrow we have a couple more central bank announcements, but the market is waiting to hear what the Fed will do in November. We’re also seeing oil dropping from the highs as inventories rise and the US dollar appreciates.
The USDCAD declined on the Bank of Canada (BoC) news today. With the end of its quantitative easing program, the BoC is entering the reinvestment phase. It will buy government bonds solely to replace maturing securities and according to the central bank, the overnight rate will remain at 0.25%, in line with forecasts. The price action today is currently a bearish engulfing candle removing the stops below the last 3 days' price lows and highs. A break below the October 21st low would open prices towards 1.2267 and the June 2021 swing low. The Canadian dollar’s appreciation was only curtailed by the oil inventory news from the EIA.
In the week ending October 22, the US Energy Information Administration (EIA) reported an increase in commercial crude oil inventories of 4.3 million barrels excluding the Strategic Petroleum Reserve. The inventory builds are growing which is a sign of a lack of demand.
US crude oil refinery inputs averaged 15 million barrels per day, up 58,000 barrels per day from last week. The refineries operated at 85.1% of capacity, while gasoline production increased to 10.1 million barrels per day on average. Brent oil dropped by -1.78% today and is -1.54% lower for the last week. The price action in Brent has been sideways since the 18th of October and could be a distribution pattern, with lower prices the next logical step.
The US dollar index has recovered from its lows today and appears to have found a demand zone from the balance area created last week. A stronger US dollar would also weigh on the oil prices and would also prevent the USDCAD from going much lower. US data out today included inventories of manufactured durable goods which declined less than expected in September by 0.4% or $1 billion, according to a report released by the US Census Bureau. Shipments of manufactured durable goods rose by $1.1 billion to $257.0 billion, while unfilled orders expanded by $8.8 billion to $1,247.1 billion.
After today's UK budget, the GBPUSD dropped but is trying to recover into the London close. The Chancellor of the Exchequer of the United Kingdom, Rishi Sunak, presented his autumn budget statement before the UK parliament on Tuesday, forecasting an economic expansion of 6.5% in 2021. Chancellor Sunak said in normal times the Government should only borrow for investment and public sector debt must be falling as a percentage of GDP.
The ActivTrades sentiment indicator is showing traders are still in the bearish camp for the GBPUSD so we’re more likely to see high prices. With an expanding economy, the Bank of England is likely to see more reasons than not to start to raise interest rates and start a rate hike cycle.
Tomorrow we have more central bank announcements from the Bank of Japan and the European Central Bank, along with US Advanced GDP and Initial Jobless Claims data.