Monday August 23rd, 2021

The US$ weakens, oil prices rally, equity markets & US yields strengthened as markets rebound on Fed comments. Fed President Kaplan said on Friday that rising Delta cases is limiting production output and that a persistent adverse impact could make him change his views on Fed tapering timing. Fed Chair who will be speaking in Jackson Hole, his speech will be widely anticipated and he is expected to refrain from hits of tapering in his speech. The US$ consolidates in early trading after its biggest weekly rise in 2-months, the safe-haven US$ is expected to remain supported as Delta variant cases continue to rise in the US. In other news, House of Reps return to DC to try and pass US$3.5T social policy bill. The UK PMI slowed to 6-month lows as staff shortages & supply chain issues impacts growth. In the EU August PMI remains strong only dipping slightly below July’s 2-decade high pace. In Japan private sector growth slowed as rising covid cases took a toll on August PMI. Covid, The Australia PM said “lockdowns cannot go on forever, saying it will end when we start to get to 70%+ vaccination rates. Japan asks Tokyo hospitals to accept more covid patients, while China reports no new covid cases for the first time since July. The US has administered +362.7 million does as of Sunday the CDC says yesterday. In currency markets, CNY up 0.25% rebounding from 3-week lows after markets lower expectations of short-term Fed tapering, Asian currencies strengthen 0.2% on average vs US$. Trading currencies are mixed with JPY down 0.2% while MXN firms 0.23%, NZD & ZAR are up 0.45, AUD strengthens 0.55%, NOK rallies 0.65% on stronger oil prices vs US$. Intraday US PMI data will help provide market direction. 

Oil prices rally 3% after 7-days of losses, the gains come despite ongoing Delta demand concerns. Expect to see oil prices remain volatile and vulnerable to further weakness as travel restrictions and domestic lockdowns continue. C$ strengthens from Friday’s 8-month lows on the combination of stronger oil prices and a weakening US$. Expect markets to consolidate ahead of Fed Chairs Jackson Hole speech. Domestically election campaigning is not expected to have an impact on C$ until debates starts. Support lowers to 1.2700, if breached look for 1.2644 next, while resistance resets to 1.2807.

Euro firms amid a weaker US$ and firm EZ PMI data. The prospect that the Fed my refrain from tapering amid rising delta variant in the US put pressure on the US$ and allowed Euro to breach the 1.17 level vs US$. Domestically covid cases have fallen in Spain, stabilized in Italy, but cases are rising in both France and Germany. Our bias remains to sell Euro on rallies towards 1.1800 vs US$. Support rises 1.1660 next, while resistance holds at 1.1760.

EURGBP weakens despite disappointing UK PMI data as markets focus on rising French & German covid cases. Support resets to .8426 (1.1868) Feb 2020, if breached look for .8274 (1.2086) Dec 2019, while resistance holds at .8600 (1.1628).

GBP edges above 1.3650 despite weaker than expected UK PMI data and rising domestic covid cases. The pounds strength is primarily driven on US$ weakness, but GBP remains vulnerable to further weakness. Fed Chair’s Jackson Hole speech will likely become a primary focus point for markets this week as investors look for further hints on Fed tapering. US PMI data will provide some intraday direction to the markets, but bias remains to sell GBP on rallies vs US$. Support holds at 1.3570 and resistance remains at 1.3680.