Tuesday February 16th, 2021

Equity markets strengthen, US Treasury yields rise, oil prices hold at 13-month highs while the US$ index weakens. Despite 30-year US Treasury yields +2%, investors are exiting US$’s safe-haven and are embracing a rising risk-on sentiment. Markets are optimistic that US1.9T stimulus plan will pick-up momentum with the completion of the impeachment trial. Lael Brainard, Governor at the Fed speaks later today and my give guidance on the Fed’s view is on higher inflation prospects. Serve weather across the US causes power outages impacting over 5 million American’s. The power outages will likely increase arguments against the US Presidents energy policy. CNY dipped after an FT article saying, “China targets rare earth export curbs to hobble US defense industry”. CNY is flat, JPY is down 0.5%, while Asian currencies are down 0.1% vs US$ on average. Trading currencies are stronger with ZAR, AUD & NOK are up 0.25%, MXN is up 0.38%, NZD up 0.5%. No key US data out today, focus will remain on US stimulus, US weather updates and Fed Brainard comments. 

Oil prices holds near 13-month highs with Brent Crude up +12.5% in February as an extreme cold snap shut down wells across Texas. Oil prices also gained after Yemen’s Houthi group said it launched attacks on Saudi Arabia, raising supply concerns. C$ rallies alongside oil prices and an increasing market risk-on sentiment. Countering the risk on sentiment for Canada are vaccination delays and increasing virus variants remains the key obstacle for a Canadian economic rebound. Intraday, no key Canadian data out today, so focus will remain US stimulus efforts and oil prices for direction. Support at 1.2586, if breached 1.2522 (Apr2018) with resistance building 1.2680.

Eur strengthens on a weaker US$ and positive domestic economic data. Risk-on sentiment returns seeing investors exiting safe-haven US$. A flurry of positive EU data saw Economic Sentiment, GDP, Employment Change all came out better than expected. EU covid situation is improving with virus cases dropping, while the EU’s vaccination campaign picks up momentum.  In Italy political uncertainty calms as Mario Draghi is sworn in as its new Prime Minister. Focus remains on US stimulus updates which is the primary driver for the global risk-on sentiment. Support rises to 1.2080 with resistance rising to 1.2190.

Eur/GBP retests of .8736 down 1.3% in February. Rising risk-on sentiment will likely see increasing support for Euro. Critical support holds at 8669, if breached Eur/gbp could weaken further to .8292.

GBP surges towards 3-year highs amid vaccination optimism and risk-on sentiment. The UK’s successful coronavirus vaccination campaign continues to drive the pound higher as risk-on sentiment returns. The UK recorded its lowest number of coronavirus levels since October, with the UK PM looking for a “cautious but irreversible” path out of lockdown. In other UK news, Ireland is seeking a pragmatic approach to the Brexit board protocol, with the Irish foreign minister calling for “flexibility”. Markets remain cautiously optimism for GBP to retest the physiological 1.4 GBP/US$ level. Support rises to 1.3865 as resistance focuses on 1.3997 (26th Apr 18).