Thursday August 12th, 2021

The US$ is flat, oil prices slip, equity markets are mixed and US yields dip ahead of US Jobs & PPI data. Markets focus on today’s US Initial Jobless claims which are expected to fall to 375k vs 385k and Y/Y PPI which is expected to be unchanged at 7.3%. Wednesday’s softer US CPI data saw US yields ease and played to the Fed’s narrative that current inflation is transitory. Fed presidents in their recent speech’s appeared to be guiding markets to the prospect of early tapering and higher interest rates as soon as 2022. Fed Kaplan said he would press his colleagues to announce a tapering plan in the Fed’s September meeting. In other news, fears are going that supply side constraints will increase as major Chinese ports close container terminals as workers test positive for covid. Poland defies the US & EU by passing a contentious media law. Covid, China tightens social restrictions as the rise of domestic covid cases renews debate about whether the Chinese action plan will be sufficient to deal with its biggest outbreak since Wuhan. In Australian major cities including Sydney, Canberra & Melbourne increase lockdown restrictions. In currency markets, The US$ dips from its 4-month as domestic inflation fears ease. CNY steadies on suggestions of Chinese stimulus. Polish Zloty weakens 0.35% on political uncertainty. CNY is flat while Asian currencies dip 0.15% on average, but outliers THB rallied 0.45% and KRW tumbled 0.75% vs US$. Trading currencies are under pressure with JPY down 0.05%, ZAR, MXN, NOK, AUD & NZD fall 0.25% vs US$. Focus will be on US Jobs & PPI data for intraday direction. 

Oil prices dip in early trading after the IEA warning that the Delta variant will slow demand and the US calls on OPEC+ to increase supply. The IEA said in its monthly report that demand for oil eased in July and downgraded its growth forecast forQ2/21. C$ holds within its current range as oil prices rebounded initially on softer US CPI data. C$ remains vulnerable to further weakness if oil demand falls. No Canadian data releases this week, so C$ remains focused on US Jobs & PPI data, alongside oil prices for intraday direction. Support holds at 1.2475, while resistance holds at 1.2605 if breached 1.2730 next. 

Euro holds below 1.1750 as the US$ rebounds. The Euro’s rally on the softer US CPI data stalled as investors remain cautious that rising covid cases could derail the global economic recovery. The risk-off sentiment is prevailing as Asian/Chinese cities increase lockdown restrictions and are starting impact supply chains with shipping terminal closures in China. Our bias is that Euro will remain under pressure as safe-haven US$ demand continues. Support holds 1.1702 (Mar 31st) while resistance remains at 1.1790.

EURGBP holds steady intraday, but year-to-date EUR has weakened 5.2% vs GBP as the UK’s strong covid vaccination strategy and hawkish BoE comments continue to favour GBP vs EUR. 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 dips below 1.3850 amid risk-off sentiment and safe-haven US$ strength. The cautious market mood puts pressure on the GBP as investors favour the US$. Domestically mixed UK growth and industrial numbers put additional pressure on the pound and opens the potential for a retest of 1.3800. Focus shifts to the US Jobs & PII and covid updates for intraday direction. Support resets to 1.3800 while resistance holds at 1.3930.