Tuesday August 24th, 2021

The US$ steadies, oil prices extend gains, equity markets are mixed and US yields firm as risk-on sentiment grows ahead of the Jackson Hole Economic Symposium. Global markets continue to rebound ahead of the Fed Chairs speech at Jackson Hole on Friday, where Fed tapering expectations have eased. Today, focus will be on US New Home Sales and updates the US budget for intraday direction. The US$ holds near its 5-day lows as market sentiment towards the spread of Delta variant eases. In other news, US House of Representatives delays the vote to advance US$3.5T budget as lawmakers continue to attempt to strike a deal to move the bill forward. The German economy grew more than expected in Q2 y/y growing 9.4% vs expectations 9.2%. UK Property sales fell by 50% after a covid home purchase tax break ends. US VP Harris says China intimidates to back its South China Sea claims. Covid, US FDA granted full approval Pfizer & BioNech in a move to accelerate US vaccinations. Pakistan gets US$2.75 billion in covid-19 support funds from the IMF. NZ covid Delta outbreak has reportedly spread rapidly keeping restrictions in place. The Delta variant blow knocks the wind out of Asia’s economic recovery pushing potentially 80 million people into poverty. In currency markets, oil currencies RUB, MXN, CAD & NOK continue to extend gains as Brent Crude breaches US$69pb. NZD rallies after its central bank flagged it considered a 50bp hike at its next meeting. CNY dips 0.05%, while Asian currencies are down 0.1% on average, but outlier THB falls 1% on Covid concerns. Trading currencies are mixed with JPY down 0.05%, while MXN & ZAR up 0.15%, AUD & NOK strengthen 0.5%, and NZD rallies 0.8% vs US$.

Oil prices extends gains up +6% from Friday with Brent Crude approaching US$70pb as demand outlook grows after Mexico suffered a major production outage. Oil also rallied as risk-sentiment grew after the FDA approves the covid-19 vaccines. C$ had its strongest single day rally since March2020 as oil prices surge and the US$ remains under selling pressure as US tapering expectations ease. Our bias is to take advantage of the current levels to buy US$ as rising vaccination levels across the US will put Fed tapering back on the table. Equally covid cases globally continue to rise which will keep pressure on oil demand through 2021. Support lowers 1.2590, if breached look for 1.2508 next, while resistance resets to 1.2680, if breached look for 1.2810.

Euro stalls below 1.1750 despite increased risk-on sentiment and a weak US$. Euro disappoints investors with its inability to sustain gains vs the US$ amid risk-on dollar selling. Domestically German GDP grew 1.6% vs 1.5% Q/Q better than expected and providing support to the Euro. Eurozone covid cases eased, with new cases in Germany also falling as vaccination levels across the EU continue to rise. Markets are expected to consolidate at current levels as markets await Fed Chairs speech at Jackson Hole. Support rises 1.1660 next, while resistance holds at 1.1760.

EURGBP holds steady as markets consolidate ahead of the Jackson Hole Economic Symposium. Support resets to .8426 (1.1868) Feb 2020, if breached look for .8274 (1.2086) Dec 2019, while resistance holds at .8600 (1.1628).

GBP fails to breach 1.3750 as the US$ weakness stalls above its 5-day lows. The prospect of a delayed fed tapering and the FDA approval of the two vaccinations kept pressure on safe-haven US$, ahead of the Fed Chairs speech on Friday. Domestically covid cases continue to rise, house sales have fallen and service purchasing managers index fell below expectations. Support rises to 1.3630 and resistance resets to 1.3750.