Monday July 26th, 2021

The US$ weakens, oil prices slip, equity markets and US yields are weaker as markets await the Federal Reserve rate decision on Wednesday. Markets will be focusing this week on The Fed’s rate decision where the Fed Chair is anticipated to lay the groundwork for announcing tapering of its asset purchases by the end of 2021. Any perceived deviation from expectations could trigger another increase market volatility. Rising covid cases across the Americas, Asia and Europe remains the primary concern to markets which should support a safe-haven currencies. In other news, US Deputy Secretary of State meeting in China got off to a tense start with Chinese Vince Foreign Minister saying that the Sino-US relationships “is now in a stalemate and faces serious difficulties”. In Washington, The White House shifts its messaging on inflation from “transitory” and rewords their message as they attempt to salvage their Social & Infrastructure programs which are under attack from the Republicans. Infrastructure talks are being reported as 90% complete, but inflation and mid-term elections continue to impact talks. In the currency markets, oil currencies RUB, NOK & MXN weaken as oil prices ease while safe haven US$ & JPY remain firm. AUD & NZD remain under pressure with rising covid cases increases domestic lockdowns. CNY is flat while Asian currencies are down 0.1% on average vs US$. Trading currencies are mixed with AUD & MXN are down 0.05%, NOK weakens 0.15%, while NZD is up 0.1%, JPY & ZAR strengthen 0.25% vs US$. Intraday US New Home Sales & Dallas Fed Manufacturing Business data, alongside infrastructure and covid updates will provide direction to the markets today. 

Oil prices slip in early trading as covid related demand worries resurface as well as changes to import rules in China offsetting some expectations of tighter supplies through the rest of 2021. Beijing cracks down on the misuse of import quotas, rising domestic covid cases and high oil prices has seen oil imports sink to their lowest levels in 20-years. C$ is flat in early trading and remains vulnerable to further weakness as the Delta variant cases rise across the EU, US & China possibly having a greater impact oil demand. Expect C$ to remain within recent 1.25-1.27 range ahead of Wednesdays Fed rate decision and CAD CPI data. Support sits at 1.2497, a break could see a retest of 1.2425 while resistance resets at 1.2605, if breached look for 1.2730.

Euro holds within 1.1750-1.1800 range as markets remain cautious as risk off sentiment persists. Escalating global covid cases, increasing Sino-US relationships and disappointing German IFO business climate data is keeping Euro under pressure. Rising covid cases globally and dovish ECB comments is expected to keep pressure on the Euro as markets await Wednesday’s Fed rate decision and the Fed Chairs comments. Bias remains that Euro is vulnerable to further selling pressure. Support holds at 1.1750, if breached look for a move to 1.17, while resistance remains at 1.1870.

EURGBP holds stable as safe haven US$ & JPY remain dominant with rising covid cases and ahead of Wednesdays Fed comments. Support holds at .8550 (1.1695) if breached look for .8495 Apr 5th (1.1770) with resistance remaining at .8665 (1.1540).

GBP edges higher as UK covid cases recede for a 5th day. The UK posted its 5th straight day of declining covid cases, its best results since Feb 2021. Brexit issues, travel restrictions will be sidelined as markets wait for the Fed rate decision on Wednesday. In the short term the pound will pivot on domestic virus cases, if the downward trend continues expect the pound to continue to edge firmer. Support resets to 1.3740 while resistance holds at 1.3825, if breached look for 1.3900 next.