Friday August 13th, 2021

The US$ eases, oil prices dip, equity markets and US yields are mixed ahead of US Michigan Consumer Sentiment index (MCSI). The US$ index is on track for a 2nd-consecutive weekly gain on expectations the Fed could announce plans to taper at its September meeting. Thursday the US PPI posted their largest annual increase in over a decade y/y through July and US jobless claims fell 12k to 375k. Focus shifts to Michigan Consumer Sentiment Index (Aug) which highlights personal consumer confidence in the economy and is expected at 81.2, holding steady from July. In other news, China declares rain “red alerts” in 5 cities as heavy rains forces evacuation of nearly 6,000 people.  Covid, The US FDA to authorize a 3rd vaccine shot for people with weak immune systems. The US CDC says 90% of US counties meet its Covid guidelines for masks indoors. In Asia, Malaysia slashes its 2021 growth outlook due to covid lockdowns, Indonesia trade surplus is expected to widen after the government-imposed mobility restrictions and Thailand Q2 GDP shrinking 1.4% and outlook remains weak due to covid restrictions. In currency markets, CNY is flat while Asian currencies on average are down 0.1% vs US$, but the outlier THB is down 1% vs US$. Trading currencies edged higher with JPY, NZD & AUD up 0.1%, NOK & MXN rally 0.4%, but ZAR falls 0.3% on covid concerns. Intraday the Michigan Consumer Sentiment could provide direction, but markets will shift their focus to the Jackson Hole Economic Symposium Aug 26th– 28th.  

Oil prices ease but hold relatively steady considering the IEA warning that demand is expected to fall owing to the spread of the covid variants globally. OPEC+ on Thursday contradicted the IEA’s report and stuck to its own forecast for a rebound in global oil demand in 2021. C$ holds within its weekly range despite a strengthening US$ index and oil price volatility. PM Trudeau is planning a snap election for Sept 20th, with a hope of securing a majority government. The prospect of Fed tapering, oil price pressure, surging covid cases globally favour a stronger US$ scenario and the potential of C$ retesting 1.2850 into September. Support holds at 1.2475, while resistance remains at 1.2605 if breached 1.2730 next. 

Euro holds above 1.17 vs US$ amid cautious market mood and ahead of US consumer sentiment report. Euro rallies feel like dead cat bounces and with increasing covid cases across Asia & the US, the prospect of Fed taper continues to favour the safe-haven US$. ECB President Lagarde warned about the concerns of another wave covid and its impact on the EU’s economic recovery. If the MCSI comes out within expectations, look for opportunities to sell Euro on any rallies. Support holds 1.1702 (Mar 31st) while resistance remains at 1.1790.

EURGBP rebounds, but year today EUR has weakened 5% vs GBP as the UK’s strong covid vaccination strategy and hawkish BoE continue to favour GBP vs EUR. Support resets to .8426 (1.1868) Feb 2020, if breached look for .8274 (1.2086) Dec 2019, while resistance holds at .8600 (1.1628).

GBP slips below 1.38 vs US$ amid risk-off sentiment Fed tapering expectations and safe-haven US$ bias. The pound is down ¾% month-to-date driven by a strengthen US$ on a strengthening US economy while the UK economy is mixed and struggles to rebound post Brexit / covid. Support resets to 1.3765, if breached look for look for 1.3689 (Jul20th) while resistance lowers to 1.3887.