Friday January 22nd, 2021

Rising covid cases and vaccination challenges saw equity, oil and currency markets come under selling pressure. The handling of the global pandemic and national vaccination strategies is now key for investors. The US President will speak later today and will likely discuss the US economy, stimulus and his administration’s calls for a “Wartime” virus fight strategy to increase vaccination efforts. Rising covid infections in China, virus variants across the EU alongside a modest pickup in US Treasury bond yields saw investors return to safe haven US$. Fresh lockdown measures in China saw CNY down 0.3%, while Asian currencies drop 0.4% on average vs US$. Trading currencies weakened vs US$ with JPY down 0.2%, NZD down 0.5%, AUD down 0.7%, NOK, MXN & ZAR all dropped 1%. Focus shifts to US PMI data releases, EIA inventory data and US President Biden’s speech for intraday direction.

Oil prices drop over 2% retreating from 11-month highs after China instigates new covid restrictions triggering fresh fuel demand concerns. The market is awaiting inventory data from the US EIA data today after Wednesdays surprised spike in US crude inventories. C$ tested fresh multi-years highs yesterday at 1.2590 but retreated quickly as oil prices came under selling pressure. CFIB’s senior director of national research said, “there is an alarming increase in the number of businesses considering closing” – in total “one in five businesses are at risk of permanent closure by the end of the pandemic”. Focus shifts to Canadian Retail Sales, EIA inventory & US Presidents speech for direction. Support rises 1.2635, with minor resistance at 1.2715 if breached look for 1.2765 next.

Euro edges higher amid better-than-expected PMI data and the ECB hawkish tone on PEPP. EU & German services PMI data beat expectations and gave euro a boost. ECB Lagarde said that the central bank may not need to use all of the Eur1.85T Pandemic Emergency Purchase Program if financing conditions can be maintained. The EU warns tougher lockdowns measures as it continues to grapple with vaccination shortages and roll out delays, Germany expects vaccine shortages to last another 6-8 weeks. Political concerns continue in Italy as PM Conte is considering calling a snap election. Delays in vaccination roll outs will likely see extensions to current lockdown measures and cap Euro strength. Support at 1.2165 with resistance at 1.2225.

GBP retreats from its 2021 highs on weak data and a strengthening US$. The pound weakened vs the US$ as data showed weak retail sales after the UK’s November lockdown impacted December retail sales. The prospects of continued lockdowns, schools being closed until April and the likelihood of non-essential stores remaining closed longer, raises concerns for the UK economy into Q2. The UK’s vaccination efforts are providing underlying support for the currency as the potential reducing lockdown measures increases with vacation rollouts. Intraday markets will focus on Presidents Biden’s speech with focus on vaccination and stimulus efforts. Support at 1.3620 with resistance at 1.3710 if breached 1.3792 (April 2018) remains a key pivot.