Friday February 26th, 2021

Equities, commodities & oil prices weaken, US yields remain near highs strengthening the US$ as risk-off sentiment returns. President Bidens stimulus bill runs into a snag as the minimum wage hike ruled out of order. An amended US$1.9T stimulus plan is expected to be approved today and should remain on track for the President to sign by March 14th. US yields rose on Thursday on a combination of optimism for the economy, rising inflation expectations and questioning how long the Fed can stay on hold if the US economy booms as anticipated. In other news, President Biden takes his first military action launching air strikes against Iranian-backed groups in Syria. The Khashoggi report may test US-Saudi relationships as President Biden considers a “range of actions” over the crown prince’s alleged role in the journalist’s killing. Currency market volatility continues with trading currencies under pressure, JPY fell 0.2%, MXN down 0.35%, NOK down 0.8%, and AUD and NZD fell aggressively 1.1% while the outlier ZAR rallies 0.75% supported by South Africa’s higher yields. In Asia, the CNY weakened 0.1% while Asian currencies fell 0.3% on average vs US$. Expect currency markets to remain vulnerable to further volatility amid US stimulus and bond market activity. Intraday a flurry of US data releases including Chicago Purchasing Manager Index and the Michigan Consumer Sentiment index.

Oil prices drop 1% as US output improves and markets swing to risk-off sentiment overnight and continues into the North American open. Focus shifts to the OPEC meeting on March 4th where members are expected to increase output levels which potentially cap current oil prices. C$ aggressively snapped back +180 basis from its 3-year high 1.2465 as US yields drove the US$ higher. Rising yields and weaker commodity, equity and oil prices will likely keep pressure on the C$. Markets are expected to remain volatile driven by US yields, potentially giving short-term US$ sellers an opportunity to see a move back to 1.27 – 1.28. Intraday US data alongside Canadian Raw material Price Index and Industrial Product Price for direction. Support rises to 1.2600, and resistance resets at 1.2715.

Euro drops 1% from Thursdays highs amid a swing to risk-off sentiment. Rising yields, US stimulus snags and US$ month end demand saw currency volatility spike. On a positive note, the EU committed to speed up its vaccination program, saying that it expects about 100 million doses to be delivered by the end of March. Key EU member countries yields lower as the ECB fights back against the bond rout indicating its concerns. Markets will wait to see if the Fed has any response to the rising yield rates, as well as US data releases for intraday direction. Support drops to 1.2060 with resistance lower at 1.2160. EUR/GBP extends its gains as GBP as the pound weakness is accelerating, but mtd GBP remains up 1.7% vs Eur.  Support rises 8685, while resistance 8735.

GBP has fallen +350 basis points from its highs on Wednesday to today’s lows. The combination of profit taking rising US yields and a rallying US$. Underlying support for the UK remains intact as its vaccination program increases the potential of a quicker exit from pandemic lockdowns. BoE Chief Economist Haldene said that the high degree of two-sided uncertainty on inflation is understandable. He went on to say, “if economies bounce-back as the vaccination program is rolled-out policy stimulus could over-stimulate the economy and, with it, inflation”. Bias switches to buy GBP on dips towards 1.36-1.37 level. Support resets at 1.3860 while resistance at 1.4000.