Tuesday February 23rd, 2021

Equities remain under pressure, oil prices strengthen, US yields slip and the US$ bounces ahead of the Fed Chairs testimony. Fed Chair Powell testimony today will be watched closely for his views on higher US yields and rising US inflation. Markets are worried if the Fed reduces liquidity and tightens too quickly or could it be complacent which could pose overheating risks. The US House is expected to pass President Biden’s US$1.9T stimulus relief bill this week, while US$15 minimum wage remains a stumbling block for the Senate. The US$ bounces off 6-week lows ahead of the Fed, Aud remains strong as commodities rally, GBP extends gains supported by its vaccination strategy. CNY is flat, while Asian currencies are down 0.1% on average vs US$. Trading currencies are mixed with JPY & NOK are down 0.20%, ZAR is down 0.4% as MXN is Flat, while NZD up 0.1% and AUD is up 0.25% vs US$. Focus is primarily on the Fed Chairs Testimony today, but also out today is US housing Price Index, Consumer Confidence and API weekly Crude Oil Stock.

Oil prices advance their gains underpinned by easing virus lockdown restrictions, a slow US output restart and Goldman Sachs projections of US$75 crude into Q3. C$ weakens from new highs 1.2580 despite strengthening oil prices, firmer commodity prices and higher Canadian yields. Today, US President Biden & PM Trudeau meet virtually and will likely discuss China, climate, global security and collective interests. Also today, BoC Governor speaking and he is expected to focus on the covid impact on the labour markets, vaccination strategy and the economic expectations into Q2. No notable Canadian data this week, focus will remain on oil prices for key direction. Support at 1.2580 if breached look for 1.2522 (17Apr2018) with resistance at 1.2665. 

Euro tests a 4-week high ahead of the Fed Chairs testimony. Markets will be watching Powell’s comments closely after ECB President Lagarde said yesterday that the ECB was “closely monitoring” rising borrowing costs. Lagarde’s comments were a clear sign that policymakers are uncomfortable with the rally in yields, which could impact recovery efforts. EU CPI data came out within expectations as well industrial data out of Italy were also within expectations. Markets remain focused on US yields and the Fed Chair comments intraday. Support holds at 1.2110 with resistance extending to 1.2220. EUR/GBP comes under fresh selling pressure as GBP bulls are spurred by reducing lockdown restrictions and positive UK data. Support dips to 8590 with resistance holding at 8700.

GBP extends its gains to fresh 35-month highs amid upbeat data and virus optimism. UK covid statistics have been falling as the government speeds up vaccinations with a goal of all UK adults having their first dose by July 31st. UK unemployment rate hit 5.1% with better-than-expected jobless claims falling by 20k and wages rose by 4.7%. Markets will focus Fed Chair Powell, if US yields slip it will add pressure to the US$ and helps a stronger GBP scenario. Support rises at 1.3985 while resistance rises to 1.4097 (new 2021 high), with the next key resistance sitting at 1.4245 (19th Apr 2018).