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Andreas Zanin
Analysis, Market Analysis | September 20, 2023

JASPER’S MARKET SQUAWK 20-09-2023

Market Jitters Ahead of Fed Day as Fiscal Uncertainty Rises

Risk appetite waned ahead of the big Fed Day while fiscal uncertainty was seen rising from a potential government shutdown. Yields tilted higher despite most expecting the Fed to hold, as the chances of another 25bps by the end of the year remain relatively high at 40%. Gold and crude ended their short-term runs.

Chart: EURUSD

Key Factors for Today

  • US Housing Market Faces Challenges as Mortgage Rates Reach Highest Levels Since 2007
  • Europe’s Disinflation Narrative at Risk as Core Inflation Experiences Unexpected Expansion
  • Canadian Inflation Figures All Higher, Boosting the Canadian Dollar Against
  • WTI Prices Retreat from 10-Month High Despite Crude Stocks Drawdown

US House Starts Sink as Mortgage Rates Continue to Rise

Housing starts in the US came out worse than expected, with the fast component falling to 11.3% when a 2% expansion was expected. That was the 5th month this year alone that it sunk. With the 2-year yield spiking to its highest since 2006 Tuesday and the 10-year rise sending mortgage rates to their highest since 2007, at 4.366%, the housing market may remain under pressure. The dollar’s rise saw gold ending its 3-day streak shy of $1940 an ounce, opening the door towards $1923.

Europe Disinflation at Risk After Fast Core Expansion

Annual inflation in Europe received a downward revision from 5.3% to 5.2%, the lowest reading since 2022, but the cost of services remained elevated, and CPI was far from the 2% target. Core inflation slowed down from 5.5% to 5.3%. However, the fast reading rotated back into an expansion of 0.3% from -0.1%, killing the disinflation narrative. EUR/USD bulls failed to get through $1.07, exposing the support at $1.0643 again.

Canadian Inflation Higher on All Fronts, Boosts CAD

Canada’s inflation soared to 4% on an annual basis from 3.3%, while economists expected an expansion of 3.8%. Core inflation also rose ten basis points annually, with the fast reading showing an increase of 0.4% from an expected 0.3%. The hotter data sent USD/CAD to a low of 1.3380 Tuesday, but price action recoiled by the session’s end to 1.3448. Moving higher can bring 1.3485 back into focus.

API Crude Shows 5th Week of Declines, WTI Still Falls

Crude stocks showed a significant drawdown of 5.25 million barrels, the 5th drawdown over the past six weeks, far from analysts’ estimates of a 2.667M build. Still, WTI oil fell after hitting a 10-month high of $92.65 a barrel Tuesday, losing 1.59% by the close after retesting the $90 handle, as investors secured some profits ahead of FOMC. Pressured early Wednesday, WTI could revisit $88.80 and $87.80/bbl unless the bulls regain momentum.

On The Docket

  • GB Inflation
  • ECB Schnabel Speech
  • EIA Crude Oil Stocks Change
  • BOC Summary of Deliberations
  • Fed Interest Rate Decision
  • Fed Press Conference
  • NZ GDP Growth

FX 1-Day Relative Performance (USD)

  • Aussie 0.03% down, while Kiwi 0.5% up
  • Euro 0.02% higher, Pound unchanged
  • Yen muted, Swissy 0.02% lower
  • Canadian dollar down by 0.07%
  • Gold 0.13% lower, Silver at -0.43%
  • Crude 0.88% down, Brent 0.91% in red
  • Natural gas nosedives 3.2%
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