Friday July 30th, 2021

The US$ consolidates, oil prices dip, equity markets and US yields are down ahead of US consumer sentiment data. The US$ tested a new monthly low and is set for its worst week of performance since May 2021 on this weeks dovish remarks by the Fed and underwhelming economic data which reversed the US$ rally. Thursdays US GDP rose just 6.5% in Q2/21, well below economists’ expectations of 8.5% and triggered US dollar selling. Investors will be focusing on a number of US macro indicators out today including Q2 employment cost index, and the University of Michigan consumer sentiment index for July. In other news, the Eurozone economy expands 2% in Q2/21, signaling a rebound from recession. The US House passes US$2B bill to upgrade Capital Security and aid Afghan refugees. US regulators freezes Chinese companies IPOs over risk disclosures concerns. Covid, India reported the most new covid cases in 3-weeks, Malaysia’s daily new covid cases per million is now one of the highest globally, Australia brings in the military to enforce lockdown restrictions in some suburbs and the US CDC document warns of Delta variant appears to spread as easily as chickenpox. In currency markets, GBP heads for best week in 2021, CNY sets for best week in 2 months and CAD hits a 2-week high. CNY is flat, while Asian currencies dip 0.1% on average vs US$. Trading currencies come under selling pressure with NZD & JPY down 0.1%, MXN, AUD & ZAR fall 0.25%, NOK tumbles 0.7% vs US$. Today US data releases will provide some intraday direction to markets. 

Oil prices slip in early trading, but crude prices remain on track for a positive week of gains as oil demand outstrips supply. Rising covid cases across the UK and Europe remain a concern for demand, but analysts believe higher vaccination rates will limit the need for future harsh lockdowns. C$ extends its gains from a combination of higher domestic yields, stronger oil prices and a weakening US$. In July C$ had a mixed performance against its peers, the loonie is down 1.2% on average vs GBP, JPY & EUR, but C$ rallied 1.6% on average vs ZAR, NOK & AUD. Today focus will be on US data releases as well as the key Canadian GDP expected -0.3% in May. Support resets to 1.2371, if breached look for a potential run to 1.2298 while resistance holds at 1.2497. 

Euro retests 1.19 vs US$ amid strong Eurozone GDP and a stalled US$. Eurozone GDP grew faster than expected in Q2 at 2% pulling the EU out of its covid lead recession. Among the out-performers Italy & Spain grew at 2.7% & 2.8% respectively, Portugal expanded by a remarkable 4.9% while the EU’s manufacturing powerhouse Germany its GDP fell below expectations at 1.5%. Covid cases continue to rise, but the higher vaccination levels across the EU should reduce the need for harsher lockdown measures seen in 2020. Investor optimism is rising for the single currency with many looking for a rest of 1.2000 vs US$. Support rises to 1.1835 with resistance resets to 1.1944 (June28th).

EURGBP holds steady but investor optimism for the pound returns as UK covid rates fall and Brexit concerns ease should support the pound going forward. Support resets to .8495 Apr 5th (1.1770) with resistance remaining at .8600 (1.1628).

GBP extends its gains up 1.6% just this week vs US$. Falling covid cases, a weaker US$ and easing of Brexit concerns has seen a surge in fresh investor interest for the pound. Focus will be on the BoE next week, but analysts expect the central bank will maintain its stimulus strategy but may increase rhetoric to taper as the economy recovers. Intraday US data releases are unlikely to have a major impact on currencies and our bias is to see GBP extend its current gains. Support rises to 1.3920 while minor resistance at 1.4010, if breached we could extend to 1.4132 (Jun16th).