The US$ & oil markets edge higher, equity markets are firmer while US yields ease as US inflation data is seen as transitory. US CPI beat expectations on Thursday, but economists see the inflation spike as temporary and is unlikely to affect any Fed policy change. Intraday focus shifts to the US Michigan Consumer Sentiment Index (May), a small increase is expected, and investors will be specifically watching the inflation components. The G7 summit begins in the UK where leaders are expected to discuss global vaccine distribution, financing climate change, a global minimum tax, trade and the G7 foreign policy with China & Russia. In other news, a US bipartisan group on Thursday suggested a US$ 1.2T expenditure plan which is step in the right direction for US President Biden. In Asia, China is introducing a bill tightening ban on Chinese companies abiding by western sanctions. Chinese ports hit by fresh covid-19 outbreaks is seeing congestion grow which could exacerbate supply disruptions and inflate costs. In the currency markets, the US$ index edges highs, but overall remains under pressure as investors buy into the Feds transitory inflation narrative. CNY is up marginally at 0.05%, while Asian currency strengthen 0.15% on average vs US$. Trading currencies are mixed with ZAR down 0.25%, NOK, JPY & NZD falling 0.15%, MXN is flat while AUD inches higher up 0.05% vs US$. Intraday US Michigan Consumer Sentiment Index & US Treasury Sec. Yellen will be overseeing the Financial Stability Oversight council will be watched closely for intraday direction.
Oil prices continue to edge higher, hitting fresh multi-year driven by recovery demand with Brent Crude approaching US$73pb. IEA said they expect oil demand will return to pre-covid levels in late 2022. C$ rebounds after testing a 6-day low at 1.2127 on Thursday but finds support from strengthening oil prices and hawkish BOC comments. BOC Deputy Governor Lane said that recent data shows signs of increasing resilience in the economy that bodes well for the economy. Bias remains for ongoing strength for the C$ as commodity prices extend gains, US Feds policy remains static, and the Canadian economy continues to reopen. Intraday BoC Beaudry will be speaking today alongside US Michigan Consumer Sentiment Index. Support holds at 1.2050 with key pivot at 1.1916 (May2015) with resistance at 1.2150 with key resistance at 1.2235.
Euro heads weaker and breaches 1.2150 as the US$ recovers and US Consumer Sentiment is pending. The Euro felt pressure from ECB President Lagarde saying tighter conditions may harm recovery, the dovish comments added pressure to the single currency. Markets are coming to terms with the idea that current inflation is transitory and central banks will maintain their current policies. The Eurozone is reopening, vaccination levels are increasing which combined, should provide support to the Euro towards 1.2000 levels. Support at 1.2100, while resistance holds at 1.2200.
EURGBP weakens as dovish ECB comments and keeping taping on hold put pressure on the cross. The key for the cross will be the UK’s decision on its reopening strategy. Support holds at .8550 (1.1695) with resistance remaining at .8665 (1.1540).
GBP holds above 1.4150 despite UK GDP miss and ongoing reopening concerns. UK GDP expanded by 2.3% April, missing expectations, but in the bigger picture it does show growth. Ahead of the G7, President Biden & UK PM Johnson will be seeking a solution to smooth over the tensions over the Northern Ireland protocol. June 21st reopening concerns remains a critical pivot point for the pound, and we expect we will need to wait until Jun14th for direction. Support resets 1.4040, with resistance at 1.4200, key resistance holds at 1.4235 (Feb2021).