Thursday January 28th, 2021

US$ advance slows, oil prices hold steady while equity markets weaken as risk-off sentiment builds. The prospect of a smaller-delayed US stimulus bill alongside vaccine shortages is evaporating investor optimism for a quick global economic recovery. The shortfall in vaccines in now at centre stage for risk aversion in Europe and for other countries struggling with their vaccination efforts. The Fed left rates unchanged, they highlighted a moderating US recovery, and reiterated a pledge to use all available tools to support the economy during the pandemic. Sino-US tensions eased after the US Treasury postponed a ban on American investments in companies with alleged connections to the Chinese military. CNY strengthened as tight liquidity pushed interbank rates higher ahead of the Lunar New Year holidays. CNY up 0.25% while Asian currencies mixed with PHP, MYR and INR up 0.05% vs SGD down 0.25% and KRW down 0.75% vs US$. Trading currencies came under selling pressure with JPY down 0.2%, NOK down 0.45%, NZD & MXN down 0.55%, AUD 0.8% while ZAR strengthened 0.15% vs US$. Focus shifts to US GDP, Initial Jobless Claims and US New Home Sales for intraday direction. 

Oil prices hold steady as demand concerns are offset by OPEC output controls and low inventory levels. China limits Lunar New Year trips over rising covid fears and is adding to short term fuel demand concerns. C$ weakened to one-month lows (1.2881) overnight amid rising risk off sentiment, despite steady oil prices. Investor caution grew after President Bidens cancellation of the Keystone XL pipeline, the “Buy American” and after the IMF on Tuesday slashed its 2021 GDP outlook for Canada to 3.6% from 5.2%. With oil at current levels and no key data out, expect C$ to consolidate below 1.2885 today. Support at 1.2780, with resistance at 1.2885.

Euro bounces off yesterday’s dip to 1.2060 but remains under pressure after ECB’s verbal intervention and ongoing vaccine woes. ECB member Knot’s direct comments on the high value of the Euro in its current pandemic economic environment had an impact on Euro’s strength. The fear that some Spanish regions are running out of vaccines prompted Brussels to make demands to AstraZeneca. The shortfall/delays in vaccines could delay the EU’s recovery hopes and will put further pressure on Euro. Intraday German Harmonized Index of Consumer Prices and US data will dictate short term direction. Bias that Euro will remain under pressure and could test below 1.2 in coming days if risk-off sentiment continues.  Support dips to 1.2050 with resistance at 1.2135.

GBP weakens amid US$ strengthen and vaccine concerns. As risk off sentiment returns on expectations of US stimulus delays prompted a return to safe haven US$ buying. Adding to the pounds concerns is the EU’s demands AstraZeneca takes vaccines from UK factories to make up a shortfall in supplies within the EU, this demand could ignite its first post-Brexit political fight. The UK has the 5th-highest death toll from covid-19, lockdowns remain in place until March 8th and any disruption in the vaccination roll out will impact the GBP. Support drops to 1.3575 with resistance building around 1.3685 if breached the key level remains at 1.3792 (April 2018).