Tuesday August 31st, 2021

The US$ dips, oil prices weaken, equity markets are mixed while US yields slide as markets await Fed tapering clues. The US$ index continues to edge weaker towards 3-week lows as markets look to Fridays US Nonfarm Payroll figures for clues on the Fed’s tapering timing. Intraday a combination of month-end flows coupled with US housing data, Consumer Confidence and Chicago Purchasing managers index will help provide direction to the dollar today. In other news, Eurozone inflation surges to a 10-year high which will challenge the ECB’s stance on continuing stimulus. China’s economy remains under pressure as its factory active slows in August, while the service sector contracted raising the prospect of more policy support to boost the economy. In Japan its July factory output slips as rising covid cases hits car production. Covid, the EU is reinstating travel restrictions on US visitors due to rising covid cases in the US. Taiwan expects its first batches of BioNTech vaccine to be delivered soon. South Africa detects new covid variant, still studying its mutations. In currency markets, currencies strengthen across the board as the US$ index weakens on Fed tapering expectation. CNY gains 0.05%, while Asian currencies saw SGD, PHP up 0.15% while TWD & INR strengthened 0.5% and THB, MYR, KRW & IDR rally +0.7% vs US$. Trading currencies saw JPY up 0.05%, NOK & MXN rise 0.25%, AUD strengthens 0.5%, ZAR firms 0.75%, NZD rallies 1% vs US$. 

Oil prices dip 1% as hurricane Ida’s impact on the Gulf of Mexico rigs is minimal and the flooding in Louisiana is expected to reduce demand. Oil prices are anticipated to continue to ease as refineries globally plan to increase output. C$ extends its gains for a 2nd day on US$ weakness and despite oil prices weakness. Today Canadian GDP Q/Q is expected to fall to 2.5% vs previous 5.6%, while m/m it is expected to grow 0.7% vs -0.3% previously. Intraday oil prices and economic data releases will provide the loonie direction. Support resets to 1.2548, if breached look for a test of 1.2508 next, while resistance resets to 1.2650.

Euro breaches 1.18 vs US$, testing 3-week high amid strong eurozone inflation. Eurozone CPI surpassed expectations with 3% y/y its biggest surge in a decade. Across the EU German inflation increased 3.4% y/y while France grew 2.4% y/y both above expectations and markets will now focus on the ECB and what will its next step be on its stimulus commitment. Intraday US data results will provide markets direction today. Support shifts to 1.1760, while resistance resets at 1.1865.

EURGBP edges higher in thin trading as strong EU inflation data spurred Eur stronger .8600 resistance level. 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 tops out at 1.38 despite US$ weakness. The pound is lagging its peers with its ability to rally due to ongoing Brexit – staffing shortages, ongoing covid cases and domestic inflation concerns. The EU politicians return from their summer recess in September and the Northern Ireland protocol is likely to come back on the agenda which will add further pressure to the pound. Intraday US data will provide direction, but we expect pound to remain under pressure in the short term. Support rises to 1.3700 and while resistance resets to 1.3815.