Equities are mixed today, oil strengthens, US yields higher and the US$ weakens after the US Fed’s comments boosted risk-on sentiment. Fed Chair Powell on Wednesday reiterated his comments that inflation and employment remain below the central bank’s targets. The Fed will carry on with its bond purchases and will not tighten rates until the economy improves. Senate Majority Leader Schumer predicted the Senate will approve the US1.9T stimulus bill on Friday and expects the bill to hit the President Biden’s desk before March 14th. As investors focus on post-pandemic growth, we have seen a spike in commodity prices with the commodity index set to post its best month in 10-years. Markets will continue to monitor rising US yields as they may provide a lifeline to the US$ into March. CNY is up 0.1% while Asian currencies were flat on average vs US$. Trading currencies are mixed with JPY weaker down 0.17%, MXN falls 1% and ZAR drops 1.4%, while commodity driven currencies strengthened with NZD & AUD up 0.4%, and NOK rallies 0.7% vs US$. Focus shifts to US GDP, Durable Goods and Initial Jobless Claims which is expected at 838k vs 861k previously.
Oil prices extend their gains with Brent Crude sitting +US$67pb holding near 13-month highs as US output remains tight. The Fed’s comments increased risk-on sentiment boosted oil prices as markets anticipate growing demand into Q2 and onwards. C$ rallies aggressively to a new 3-year high from the combination of rising oil & commodity prices, the Feds comments and the weakening US$. C$ played catch up to strengthening oil prices and commodity prices rallying +2.4% MTD vs US$. Fears of another pandemic wave for Canada in April could impact longer term C$ strengthening. No Canadian data today, so focus shifts to US data releases. Support at 1.2435, with 1.2253 (1stFeb18) the key support, while resistance drops to 1.2525.
Euro rallies amid risk on sentiment and a weakening US$. Euro spikes through 1.22, hitting its highest levels in 6-weeks after the Fed Chair downplayed inflation and expressed commitment asset purchases. Unlike the Fed, ECB’s Lagarde and Lane have both expressed concern over rising Euro yields. The ECB will work to deter any big increase in real or inflation adjusted interest rates as they are concerned it could have a negative impact on the EU’s economic growth post-pandemic. In the short term it will be hard for the ECB to fight a stronger Euro as the US$ remains under selling pressure. Support rises to 1.2170 with resistance at 1.2250. EUR/GBP rebounds 0.5% as EUR rallies significantly on the weaker US$, while the GBP stalls. BoE raises concern as Financial services move to the EU post Brexit. Support 8426 (Feb2020) with resistance dipping to 8686.
GBP consolidates near 1.41 after testing multi-year highs of 1.4235 on Wednesday. GBP had led its peers in strengthening vs US$ but stalled as investors focused on other currencies looking for value. The UK remains well placed for its economy to rebound from the pandemic with the vaccination efforts surpassing 30% of the UK population. Also supporting the pound are UK gilt yields which rallied the most since 2016 and will dampen expectations of any BoE easing. Support holds at 1.4080 while resistance rises to 1.4200 with the next key resistance sitting at 1.4245 (19th Apr 2018).