Friday June 25th, 2021

The US$ dips, oil prices hold steady, equity markets are mixed while US yields edge higher ahead of US inflation data today. The US$ drifted lower in early trading with the US Infrastructure agreement underpinning a shift to “risk-on” for currencies, but markets are cautious ahead of US inflation data today. President Biden declared Thursday, “we have a deal” on the infrastructure initiative with a bipartisan group of senators. Some Democrats criticized the smaller US$579B bipartisan deal as they seek spending to expand childcare and fight climate change. Focus will be on the US Core Personal Consumption Expenditures Price Index and Michigan Consumer Sentiment Index data will offer an indication of how much pressure the Fed is under to move. Today will also see four Fed president speakers and we expect to hear the continuing narrative of transitory inflation. In the currency markets, the US$ index has edged lower with the potential for the US$ to weaken further if the inflation data doesn’t surprise markets. CNY strengthens 0.25%, while Asian currencies are up 0.15% on average vs US$. Trading currencies are firmer with JPY, MXN, NZD, NOK & AUD are all up 0.1%, while ZAR the outlier rallied 0.6% vs US$. Intraday US inflation data will provide currency direction.

Oil prices consolidate near their multi-year highs supported by continued demand and declining global inventories. Market focus shifts to July 1st OPEC+ meeting where output cuts are expected to continue to ease. C$ edges higher as risk appetite grows, the US$ eases, and oil prices hold near multi-year highs. A survey by EDC showed confidence among Canadian exporters has surged to its highest level in more than 20 years amid mounting optimism that a sustained global economic recovery is underway. Bias remains to sell US$ on any rallies for a med-term retest of 1.2 levels. Support holds at 1.2248 if breached expect a C$ rally to 1.2152 next, with resistance resetting at 1.2375.

Euro inches higher vs US$ ahead of US PCE inflation data today. Euro is cautiously holding for the US inflation data but rising risk on sentiment could see the Euro retest the mid 1.2’s next. German economy Minister said, “Talks in Washington showed a window of opportunity to resolve differences and he expected the US / EU could resolve differences over steel and aluminum tariffs by the end of the year”. All signals are pointing to a stronger Euro into H2/21. Support rises 1.1900, while resistance sits at 1.2030, if breached look for 1.2150 next.

EURGBP rebounds after the market were disappointed with the BOE subdued outlook despite the prospect of US inflation hitting 3%. Support holds at .8550 (1.1695), if breached look for .8495 Apr 5th (1.1770) with resistance remaining at .8665 (1.1540).

GBP remains under pressure scrambling to hold on to 1.39 vs US$. GBP edged lower and is on track for its worth month vs US$ since Sept 2020 after the BOE kept rates on hold and toned down its hawkish outlook. Adding to the pounds woes is the continued rise in the Delta variant which has already delayed the planned Jun 21st final phase reopening. The third negative for the GBP is the ongoing dispute between the UK & EU over post-Brexit trade Northern Ireland protocol. Expect GBP to remain under short term pressure ahead of the US inflation data. Support rises to 1.3900, if breached look for 1.3825 next, while resistance holds at 1.4000.