Tuesday January 12th, 2021

US yields advance, US$ stabilizes, oil prices near 1-year highs and equity markets edge higher. US Treasury yields continue to rise as the Fed considers tapering its bond buying activity which has resulted in a return to US$ buying. In Washington the political drama continues with VP Pence unlikely to enact the 25th Amendment against the President. The Dem’s will likely now press for a 2nd impeachment against the President as soon as Wednesday.  As global virus cases approach 91mio and related deaths approach 2mio, German Chancellor warns that lockdown measure may be extended until April and the UK PM indicates tighter curbs in the UK. Currency markets rebound with CNY up 0.27% and Asian currencies up 0.2% on average, while MYR fell 0.2% after announcing a record day of covid cases. Trading currencies are mixed with JPY & NOK flat, NZD up 0.22%, AUD up 0.38% MXN up 0.58%, and ZAR rallies up 1%. No US data of note today, investors will focus on the two Fed speech’s for possible insight on US yields.

Oil prices rally almost 2% to 11-month highs as US crude stockpiles are expected to fall for a 5th-week alongside Saudi Arabia’s pledge to cut output by 1mio bpd in Feb & March. The rebound in oil prices help C$ strengthen from Mondays 1.2835 low.  C$ will now need to find a balance between strong oil prices vs the strengthening US$.  Intraday markets will focus on the Fed speeches for insight on US yields. Support remains 1.2735 with resistance at 1.2798, and again if breached look for an extension towards 1.2860.

Eur stabilizes near its 4-week lows amid rising US yields and increased German lockdown measures. US Treasuries yields continue to rise causing a return to US$ buying, keeping pressure on Euro. The EU’s response to surging coronavirus cases continues to lag behind its peers on vaccine rollouts. The German Chancellor Merkel said she expects lockdown measures to be extended to April. Support lowers to 1.2080 and resistance drops to 1.2205.

GBP strengthens amid BoE Comments and the UK’s vaccine campaign. The BoE downplayed the prospect of negative interest rates after he commented that it is a controversial issue and has a lot of issues. The GBP also found support by the PM’s pledge to boost the vaccination campaign, which has seen over 2mio people receiving their first vaccine dose.  Despite positive signs that the London outbreak is peaking, the PM is warning of tighter lockdowns to continue. Rising treasury yields which is supporting the US$ will likely stem short term GBP strength. Support rises to 1.3510, with resistance back to 1.3620 level.