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Lower Equities Boost Greenback Despite Fix-Induced Dip

  • Pressure on equities throughout Tuesday’s session ultimately boosted the US dollar, however, flows potentially linked to the WMR fix at 1600GMT provided solid two-way price action.
  • The USD index (+0.30%) had traded with a positive tone throughout early US trade, slowly erasing previous losses amid constant pressure on major equity indices. However, in the period roughly 30 minutes before and up to the WMR fixing window, the index dropped roughly 45 pips. Most noticeable in G10 was the spike in GBP, with cable rallying sharply from around 1.2155 to 1.2269 and EUR/GBP extending slippage to a new daily low of 0.8576. GBP futures saw activity ramp higher heading into the fix, with near 4000 futures contracts trading inside 60 seconds - cash equivalent of around $290mln.
  • Following this short-term dynamic, order was restored and the greenback regained its upward bias as equities extended their intra-day declines with the S&P 500 slipping as much as 2% approaching the APAC crossover.
  • Losses have been broad based across G10 with the Canadian dollar the biggest victim, falling 0.55% ahead of tomorrow’s BOC rate decision. Tomorrow's decision is seen as a tight call between another downshift to 25bp or sticking with a 50bps hike.
  • The latest climb for USDCAD sees it breach noted resistance at 1.3646 (Nov 29 high). Next up is 1.3690 (61.8% retracement of Oct 13 – Nov 15 bear leg) before 1.3808, the Nov 3 high and a key resistance.
  • Australian GDP overnight as well as Chinese trade balance figures highlight the data docket before the Bank of Canada decision, due later on Wednesday.

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