Thursday May 27th, 2021

The US$ holds steady, oil prices dip, equity markets are mixed and US yields inch higher ahead of US data releases. The US$ bounced off its lows after hints of tapering from Fed Quarles yesterday saying if the economy strengthens as he expects, it opens debate about tapering bond-buying stimulus. US President Biden speaks today and is expected to comment on the Republicans counteroffer of a US$1T infrastructure spending plan. Markets will be focusing this morning on several key data releases, US GDP is expected to grow marginally from 6.4% to 6.5%, US Initial Jobless Claims are expected to extend their declines, while Pending Home Sales will be monitored for further signs that the US housing market is cooling. If we see any significant deviation from expectations today we could see volatility increase in the currency markets. An upbeat tone to the markets came as US & China trade representatives held their first phone meeting today under President Biden’s administration, describing the call as “candid, pragmatic and constructive”. CNY advances to a fresh 3-year highs as the Chinese central banks remains on the sidelines. CNY advances 0.25% while Asian currencies are up just 0.05% on average vs US$. Trading currencies remain mixed, while the NZD remains strong after the central banks hinted towards higher rates into 2022. JPY is down 0.05%, NOK is flat while AUD is up 0.05%, MXN is up 0.15%, NZD strengthened 0.3% and ZAR rallies 0.5% vs US$. Today US President Biden speech and US data releases will provide intraday direction.

Oil prices dip as markets continue to balance between growing demand from the EU & US as restrictions ease vs reduced demand from India and the prospect of Iranian oil supply coming back online. Markets will remain focused on the US/EU Iranian nuclear talks and to what level oil export sanctions are lifted. C$ slips to a 1-week low as commodity prices ease and Canadian 10-year yields weaken. Our bias remains for a stronger C$ into the summer as oil demand is expected to rise as restrictions ease and summer travel demand increases. Our bias remains to sell US$ on pull backs for a longer-term test of 1.1600 into Q3. Intraday US jobs data and oil prices will dictate direction today. Support rises to 1.2045 with key pivot at 1.1916 (May2015) with resistance at 1.2150. 

Eur consolidates ahead of US data releases. Fed Quarles comments of room for tapering to be discussed and the resumption of Chinese/US trade talks has reignited some risk-on sentiment. Domestically vaccination campaigns continue while France & Germany are taking a pro-active approach to control rising covid Indian variant. US data will be key today provide intraday direction. Euro has the potential for further strength as risk-on sentiment returns. Support holds at 1.2170 and resistance at 1.2285 if breached look for 1.2349 (Jan2021).

EURGBP starts the North American session flat, but under the rising political uncertainties in UK and continuing Brexit issues, expect Euro to strengthen in the short-term vs the pound. Support holds to .8585 (1.1650) with resistance remaining at .8700 (1.1495).

GBP struggles to bounce off 1.4100 amid political uncertainties. The Scottish first minister (Scottish National Party) said yesterday that she was in talks with the Scottish Green Party to form a coalition party that would cement a pro-independence majority. In England Dominic Cummings, the former aide to PM Johnson in a testimony said that Mr. Johnson is unfit to be the PM. The political scandal surrounding the government’s handling of the pandemic is weighing on the pound. Today the health minister Matt Hancock is set to testify as the Indian variant is increasing concerns for the UK recovery efforts. Bias is that GBP will remain under short-term selling pressure. Support lowers 1.4050, with resistance dropping to 1.4150, key resistance remains at 1.4235 (Feb2021).