FX Daily: USD is higher, so is caution


DXY is near our 96 target ahead of schedule; profit-taking possible ahead of Thanksgiving.
Philip Wee17 Nov 2021
    Photo credit: Unsplash Photo


    USD has exceeded our expectations; DXY is within striking distance of our forecast of 96 set for 1Q22. DXY was lifted in the overnight session by its weakest components i.e., the negative-yielding currencies led by JPY (-0.6%), CHF (-0.5%) and EUR (0.4%). The European Central Bank and the Bank of Japan continued to emphasize that their countries are on a different inflation and monetary policy trajectory from the US. CAD did not benefit from the Bank of Canada’s warning that was “getting closer” to rate hikes. Instead, the loonie depreciated by 0.3%, dragged down by its weaker commodity peers, the AUD (-0.6%) and NZD (-0.8%). However, GBP managed to appreciate 0.1% from Bank of England Governor Andrew Bailey’s uneasiness over rising inflation.

    USD was also lifted by Wall Street; Dow, S&P 500 and Nasdaq Composite rose 0.2%, 0.4% and 0.8% respectively. US consumers continued to spend despite worries over high inflation. Advance retail sales increased 1.7% MoM in October; consensus had expected a smaller rise of 1.4% from 0.8% (revised up from 0.7%) in September. US large retailers reported stronger-than-expected earnings on home improvement spending (where customers were paying more instead buying more) and the stocking up of groceries by households feeling the pressure from rising prices. Capacity utilization also beat expectations with an increase to 76.4% (vs 75.9% consensus) in October from 75.2% a month earlier. The NAHB Housing Index improved a third month to 83 in November from 80 in October. Against better US economic prospects for 4Q, the US Treasury yield curve steepened to 111.6 bps from 109.8 bps. Compared to recent sessions, the rise in yields were muted at 1.9 bps to 1.634% for the 10Y and a smaller 0.2 bps increase to 0.518% for the 2Y.



    We remain wary of the DXY’s major resistance around 96.1 or its 50% Fibonacci retracement level. Profit-taking might set in ahead of the US Thanksgiving holidays next week (25 November). On Friday, Fed Vice Chair Richard Clarida will discuss global monetary policy coordination, cooperation and collaboration at a virtual event hosted by the San Francisco Fed. Bundesbank President Jens Weidmann might join other German voices in opposing the ECB’s loose monetary policy and stance. Apart from St Louis Fed President James Bullard urging the Fed to step up monetary policy normalization to manage inflation risks, other Fed officials pushed back against rate hike expectations. Richmond Fed President Richard Barkin favored patience and wants more data on inflation and jobs before a decision on rate hikes. San Francisco Fed President Mary Daly argued that pre-emptive rate hikes would not ease the supply-chain issues fanning inflation pressures. President Joe Biden will decide on the Fed Chair in the next four days, whether to reappoint Jerome Powell or replace him with Lael Brainard. US Treasury Secretary Janet Yellen favours continuity to avoid politicizing the Fed.

    Several developments suggest that oil prices may correct more from their 7-year highs. The International Energy Agency’s October monthly report noted that supply is catching up with demand as US drillers recover from the hurricanes and ramp up oil production e.g., oil barrels coming out of the largest oil field in the Permian Basin are set to exceed pre-pandemic highs this December. US President Joe Biden also asked Chinese President Xi Jinping to join in releasing crude oil reserves to stabilize prices during their virtual summit this week. OPEC reported that the global oil market is set to flip from being under-supplied to a surplus in early December. WTI crude oil prices held around USD82.22/barrel on Tuesday but remained below its peak of USD86.4 on 26 October.







    Philip Wee

    Senior FX Strategist - G3 & Asia
    [email protected]



    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.

    The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation.  Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies.  The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation.  The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. 

    This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at [email protected] for matters arising from, or in connection with the report.

    DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-878-9999. Company Registration No. 196800306E. 

    DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability.  18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability.  11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.