Tuesday April 6th, 2021

Equity and oil markets are stronger, while the US$ weakens and US yields dip as risk-on sentiment improves. The US economy continues to strengthen as seen by Mondays US ISM Services PMI for March which hit a record high for America’s largest sector. Chinese Services PMI reported today also beat expectations and alongside the US strong Service PMI data helped boost risk-on sentiment. The US$ index drops to an almost 2-week low as US yields weaken, boosting risk-on mood increases and rallying the Euro. Focus remains on President Biden’s infrastructure plan with the Dem’s looking to work towards the short-cut reconciliation process to pass the bill. If the infrastructure plan advances it may trigger higher US inflation concerns which will likely support a higher yield and US$ scenario. China’s central bank is reported to have asked major lending banks to curtail lending for the rest of 2021 after a surge in Q1 debt raises concerns of a Chines credit bubble. CNY rallies 0.25% while Asian currencies remain flat on average vs the US$. Trading currencies remain mixed with ZAR down 0.1%, NOK drops 0.25%, MXN falls 0.3% while AUD rallies 0.5% and NZD strengthens 0.6% as Australia & NZ open the first travel bubble. Intraday no key market data, so focus remains on the US tax plan as the President gets push back for his proposed 28% corporate tax rate. 

Oil prices rebound +1% from Monday’s 4% drop as robust economic data from the US & China outweighed OPEC’s loosening of output restrictions from May – July. Oil prices are likely to be capped by European lockdowns, spiking covid cases in India and the anticipation of increased Iranian supply. C$ holds near Monday’s highs 2-week highs supported by oil, US economic optimism and the prospect BoC may reduce its bond purchase program. No market moving data out today, so the focus will remain on oil prices for intraday direction. Support at 1.2520 with resistance at 1.2615. 

Euro rallies to 1.18 vs US$ amid strong US and Chinese Service PMI data boosting risk-on sentiment. The Eur rally was capped after China asks banks to pause lending which has cast a shadow over the risk-on mood. Unemployment data shows rising unemployment in Spain, Italy, and the EU, but on a positive note EU Investor Confidence beat expectations. Pandemic lockdowns continue and vaccinations remain sluggish which increases our bias to sell Euro on any rallies. Support sits at 1.1725 while resistance resets at 1.1835.  

EURGBP bounces aggressively off its recent lows as Euro benefits from risk-on sentiment. Overall, the UK’s stronger vaccination efforts and reopening program continues support a stronger GBP scenario vs EUR. Support rebounds to .8495 (1.1771) with resistance at .8560 (1.1682).

GBP drops 100bps in a volatile opening after the Easter extended weekend. The pound falls from its 2-week highs as the US$ rebounds on Chinese credit bubble concerns. The UK PM warns about complacency and may keep a ban on international travel until mid-May but pushes ahead with his next phase reopening. The April reopening “is a go” with pubs, gyms, hairdressers, and others reopening as the UK vaccinations campaign continues. Bias to buy GBP on dips as the UK exits pandemic lockdowns and reopens its economy.  Support rises to 1.3810 and resistance resets at 1.3895.