Monday May 24th, 2021

The US$ weakens, oil & equity markets rally, while US$ yields dip ahead of Fed speeches today. Risk-On sentiment is returning cautiously as the Fed holds firm with keeping interest rates lower for longer and tapering fears ease. Markets will be focusing speeches from Fed Brainard followed by Fed’s Mester and George for any signals on inflation or tapering timelines. The US$ retests its 3-month lows as traders pared speculation that the Fed may move to taper its asset purchases. In other news on Friday the White House pares back its infrastructure proposal to US$1.7T from US$2.25T but Republican dismisses the changes as insufficient. Indian covid cases stayed below 300k mark for an 8th straight day, significantly below its peak of 414k daily virus case high. In Currencies, China’s central bank reiterate no change to its FX policy as CNY edges higher by 0.1% while Asian currencies are flat on average. Trading currencies remain mixed with MXN & NZD are down 0.1%, ZAR falls 0.3%, while JPY & AUD are up 0.1% and NOK rallies 0.35% vs US$. Intraday Fed speeches and Chicago Fed National Activity Index will provide direction.

Oil prices rally +1½% in early trading amid a potential hitch in the EU/US – Iranian nuclear negotiations which would keep existing sanctions in place. Goldman Sachs commented that the case for higher oil prices remains intact even with if Iranian oil comes back online. C$ starts near Friday’s closing levels, with no economic releases and Victoria Day holidays the loonie will likely be driven by oil & commodity prices today. Short term our bias remains to sell US$ on rebounds towards mid 1.2150’s. Support holds 1.1985 with key pivot at 1.1916 (May2015) with resistance at 1.2150. 

Euro holds around 1.22 amid a weaker US$ which remains under pressure from the Fed stance on rates. The EU leaders are set to meet for a two-day summit today. ECB Lagarde on Friday said it is too early for the bank to discuss winding down its Eur1.85T emergency bond purchasing scheme, her comments capping Euro’s strength. Euro oveall remains supported by rising optimism about economic reopening across the EU from coronavirus lockdowns. Ireland is expected to bring forward the EU’s “green certificate” into operation from mid-July to mid-June. Support holds at 1.2170 and resistance holds 1.2250 if breached look for 1.2349 (Jan2021).

EURGBP rallies as GBP remains under a 2nd day of selling pressure. 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 drops aggressively for a 2nd trading session as it focuses on BOE Governors speech. The BOE Governor and the outgoing Chief Economist Haldane will be addressing the Treasury Select Committee – UK Parliament today. The BOE is expected to be upbeat, but will likely keep its stance of keeping rates on hold. GBP finds underlying support from its aggressive vaccination campaign and its phased reopening strategy that will see its economy fully opened by mid-June. Bias to buy GBP on dips below 1.41 vs US$. Support at 1.4100, with resistance resetting at 1.4195, with key resistance holding at 1.4235 (Feb2021).