Monday February 22nd, 2021

Equity markets dip, commodity, oil and US yields strengthen, while the US$ index weakens vs a basket of major currencies. Fed Chair Powell is set to testify before congress on Tuesday which is critical for US yields. Markets are focusing on inflation as economic growth expectations are rising with the increase in US’s vaccinations. The US House to vote on the US$1.9T stimulus package this week which will be a key vote for Dems. Treasury Secretary Yellen to speak at the New York Times deal book conference and focus will remain her comments on the need for the US stimulus. Sino/US tensions continue as China urges Biden to lift sanctions and stop meddling, while China makes changes for Hong Kong leadership. The has also started talks with Iran about detained Americans. CNY down 0.1%, while Asian currencies are down 0.15% on average vs US$. Trading currencies are mixed with JPY down 0.1%, NOK down 0.2%, MXN & ZAR tumble 1.2% while NZD & AUD are up 0.2% vs US$. Focus will be on ECB President, UK PM and Secretary Treasury speeches, as well possible release of Fed Chairs prepared remarks ahead of testifying to lawmakers on Tuesday. 

Oil prices strengthen in early trading as weather conditions continue to hamper US Crude ability to return to normal output levels. Oil prices also received a boost after Goldman Sachs raised its for Brent Crude forecast to $75 by Q3/21. C$ weakened in early trading despite stronger oil prices as the US$ strengthens amid rising US yields. No key data releases today, so expect markets to be driven by the US yield direction. Focus will be on BoC Governor Speech and US President Biden & PM Trudeau virtual meeting on Tuesday. Support at 1.2586 (Jan 21st low) if breached look for 1.2522 (17Apr2018) with resistance at 1.2665.

Euro strength is stalling amid rising US yields. The prospect of continued higher US yields supports the prospect of a stronger US$. Markets will focus on US Fed Chairs comments, any prospect of further asset purchases will likely cap US yields. ECB President will be speaking today and will likely touch on the economy and monetary policy in her speech. Support holds at 1.2080 with resistance at 1.2150. EUR/GBP is holding at recent lows as markets focus on US yields and UK PM speech which will provide guidelines for reopening. Support rises to 8630 with resistance holding at 8700.

GBP tests fresh multi-year highs ahead of the UK PM’s reopening speech. The UK PM is expected to announce the UK’s highly anticipated reopening strategy at 2pm est. The plan is expected to be staged reopening starting on 8th March with all schools opening, increasing gathering and some businesses opening. The prospect of continued strengthening of GBP may be stalled with a slow exit from lockdown and the focus on rising US yields supporting the stronger US$ scenario. Support holds at 1.3950 while resistance rises to 1.4075, with the next key resistance sitting at 1.4245 (19th Apr 2018)