Friday September 10th, 2021

The US$ is flat, oil prices strengthen, equity markets rally and US yields firm as risk on sentiment improves. President Biden called Chinese Premier Xi today in a bid to reset strained relations and avoid future confrontation. Investors responded positively to Biden/Xi call helping equity and currency markets to strengthen on improving Sino/US relationship. Markets will be focused on US PPI data for August which is expected to rise to 6.6% vs 6.2% in July. Intraday the US$ is vulnerable to further weakness if risk-on sentiment continues improve. In other news, Fed Governor Bowmans commented on Thursday that the central bank was close to announcing the start of Tapering. Toyota cuts production targets by 3% on parts and chips shortages. China announces its first public state oil auction to help stabilize prices and cool high raw material costs for manufacturers. Covid, US President Biden outlines a plan to mandate covid vaccines for millions: “our patience is wearing thin”. The spread of the Delta variant hit the UK economy in July with output rising just 0.1% despite restrictions being lifted. In currency markets, the CNY hits 1-week highs after the Biden/Xi phone call. CNY is up 0.2% while Asian currencies strengthen 0.25% on average vs US$. Trading currencies are mixed with safe-haven JPY down 0.25% while MXN is up 0.2%, AUD & NOK strengthen 0.4% and NZD & ZAR rally 0.65% vs US$. 

Oil prices rallies over 1.5% on a combination of a positive response from President Biden & Premier Xi 2nd call today and tight US oil supplies related to Hurricane Ida impact on the Gulf of Mexico. C$ extends its gains on a weaker US$, strengthening oil prices and BoC Governor comments. Markets will be focused on Canadian employment data and US PPI data out today for intraday direction. The current momentum favours the C$ to extend its current gains to 1.2515 next. Support resets to 1.2590, if breached look for 1.2515 while resistance lowers 1.2720.

Euro consolidates below 1.1850 despite a rising risk on sentiment. The ECB left rates unchanged on Thursday, while upgrading its economic growth and inflation projections. The positive comments were offset by ECB President Lagarde who retained the view that inflation is transitory. With limited US economic releases today, we expect to see Euro consolidate below 1.1880 as markets wait for US CPI on Tuesday. Support holds 1.1770, while resistance remains at 1.1880, if breached look for 1.1950.

EURGBP extends its weaker tone after ECB President retains her stance that EU inflation is transitory. Support resets to .8500 (1.1765) while resistance resets to .8600 (1.1628) if breached look to .8650 (1.1560).

GBP extends gains on a weaker US$ and mixed domestic economic data. The pound extended gains as investors favoured the pound vs Euro despite Brexit concerns, a weaker than expected Manufacturing Production and weak GDP in July. On a positive note, Industrial production in July beat expectations rising to 1.2% vs June’s -0.75%. On the Brexit front the UK got a setback as the EU rejects reworking of the N.Ireland deal saying it would cause instability. Risk-on sentiment supports the pound but expect the pound to hold below the key resistance at 1.3900. Support rises to 1.3785 and while resistance resets at 1.3900.