Thursday July 15th, 2021

The US$ is steady, oil prices fall, equity markets are weaker, while US yields dip amid US Jobs data and day-2 of Fed testimony. On Wednesday, Fed Powell kept to his narrative of transitory inflation & jobs recovery, raised concerns about the Delta variant and faced sharp questions about recent spikes in inflation. The US$ remains vulnerable to further volatility with flurry of US data releases, with two Fed President speakers and Fed Chair’s Powell’s 2nd day of testimony. In other news, US Dems propose tariffs on carbon-intensive imports as a way to help for their tax-and spend legislation. China’s economy grew at a slower than expected pace in Q2/21 weighed down by Covid outbreaks and rising higher raw material costs. The US Senate passes a bill to ban all products from China’s Xinjiang region. The US extends its halt to economic dialogue with China. Carmakers and airlines warn that the EU’s climate plan imperils innovation. In the currency markets, Investors turn bearish on Asian currencies as covid cases increase, YTD PHP & MYR are down 4.6% while THB is down 9% vs US$. CNY is up 0.2%, while Asian currencies down 0.1% on average vs US$. Trading currencies remain mixed with JPY is up 0.05%, AUD & NZD strengthen 0.25%, while MXN is down 0.2%, ZAR falls 0.4% and NOK weakens 0.5% vs US$. Intraday the Fed Chairs comments, Fed President speeches, Jobs data and the Philadelphia Fed Manufacturing Survey can potentially all provide direction to markets today.          

Oil prices ease over 1% on anticipated supply increase as Saudi Arabia & UAE reach a compromise and markets await the final details. Analysts at the major banks expect supplies to remain tight in to Q4/21 even if OPEC+ finalizes an agreement to raise output. C$ continues to actively trade within its recent ranges despite BOC’s optimistic economic growth comments and that Covid-19 risks has significantly diminished. Markets will be focused on the Fed Chairs 2nd day of testimony, Canadian ADP Employment Change and the details of the OPEC+ supply agreement. Expect markets to remain range bound but C$ could be vulnerable to further weakness if the Fed Chairs shows any hawkish tones. Support holds at 1.2450 and resistance at 1.2540, if breached look for 1.2595.

Euro bounces off 3 ½ -month lows on the Feds dovish message. Euro continues to be driven by the US and remains focused of the 2nd day testimony by the fed chair. The primary fear for Europe remains the rising Delta variant across Europe, coupled with increasing travel restrictions and impacting the key summer tourism season. The ECB remains supportive but is expected to keep rates lower for longer. The US data and Fed will dictate intraday direction. Support holds at 1.1750 with resistance resetting to 1.1870.

EURGBP edges lower on hawkish BoE comments. Support holds at .8550 (1.1695) if breached look for .8495 Apr 5th (1.1770) with resistance remaining at .8665 (1.1540).

GBP rallies amid hawkish BoE comments. BoE Saunders said – Withdrawing stimulus may be appropriate soon – The BOE has the option to ease QE – Activity seems to have recovered a bit faster than forecast and Risk lie on the side that output gap will close earlier than previously expected. The UK PM will be speaking today, but market focus will be on the Fed Chairs comments today which will be to markets today. Support rises to 1.3800 while resistance sits at 1.3890, if breached look for 1.3970 next.