Friday May 21st, 2021

The US$ dips, oil & equity markets strengthen & US yields are mixed ahead of US data releases and more Fed speech today. Focus shifts to US service & manufacturing PMI, US Existing Home Sales as well, Fed Daly will be speaking today. Markets will likely remain within current ranges and only an extraordinarily strong US PMI result would trigger an upswing in the US$. Thursdays US jobless claims beat expectations and set a new pandemic low, but in the bigger picture it is not enough to reverse the slide in US$. The Fed’s ongoing dovish message to keep lower rates for longer appears to have sunk in with investors. In other news, The US proposes a global corporate tax rate of least 15% in international talks to support its plan. Fed Reserve Chair Powell advances the Fed’s work on a possible “digital Dollar”. The UK to offer Australia tariff-free trade deal, which would mean removing agricultural import barriers. In currencies, the US$ index has dropped 1.7% mtd and looks set for further weakness as Fed tapering expectations fade after the FOMC minutes. CNY is up 0.05%, while Asian currencies are flat on average vs US$.  Trading currencies remain mixed with AUD down 0.05%, MXN drops 0.15%, while NOK is flat, JPY & NZD are up 0.1%, ZAR rallies 0.4%. US data results and Fed Daly comments will add to market direction today.

Oil prices rally +1% from its weekly lows as markets continue to balance rising Asian covid cases and the prospect of Iranian oil coming back online vs rallying EU / US economies. C$ restarts its rally as the Fed holds fast to its monetary stance and oil prices rebound from its weekly lows. C$ is the best performing G10 currency and is expected to expand its gains as commodity prices continue to surge and US rates are expected to remain on hold. Markets will focus on Canadian Retail sales data which are expected to drop from 4.8% to 2.3% reflecting current lockdowns. A break of 1.1916 (May2015) opens a move to 1.1563 (Jan2015). Support holds 1.1985 with resistance at 1.2150. 

Euro holds above 1.22 amid upbeat eurozone PMI data. EZ PMI beat expectations and adds to an underlying support for Euro as the EU continues to exit from lockdowns and reopens their economies. The ECB President is speaking today, and her message is expected to take a positive tone as the EU’s vaccination campaign picks up steam. In the short term the US$ will remain under pressure with the Fed’s stance on monetary policy, so expect Euro to extend its current gains. Support holds at 1.2170 and resistance holds 1.2250 if breached look for 1.2349 (Jan2021).

EURGBP falls as the GBP regains its footing after posting surging UK retail sales results. Analysts remain bearish Eur looking for a potential move towards 0.83 (1.2048) vs GBP into H2/2021. Support holds to .8585 (1.1650) with resistance remaining at .8700 (1.1495).

GBP rallies after amid strong retail sales and PMI results. UK Retail Sales came out better than expected, surging 9.2% m/m, twice the average forecasted. UK PMI data came out as expected, but combined the numbers continue to boost investor confidence in the UK economic recovery. Bias to see GBP to extend its gains finding support from strong economic results, BOE hawkish comments and strong vaccination campaign. Expect markets to remain within current ranges unless US data comes out significantly outside expectations. Support rises to 1.4165, with resistance resetting to 1.4235 (Feb2021).