Tuesday July 27th, 2021

The US$ inches higher, oil prices are steady, while equity markets and US yields dip going into the two-day Fed policy meeting. The US$ stalls near its 15-week highs as the Fed Reserve kicks off its meeting which will culminate with the Fed Chairs comments to the press on Wednesday. The Fed will likely discuss rising covid cases in the US, timing on tapering and the impact on the possible 2023 rate hikes. The Fed will be balancing the high inflation levels against the rapid rise in covid cases in America and will likely keep to rates lower for longer strategy. Apart from the Fed meeting, investors will be watching US Consumer Confidence measure for July and Durable Goods Orders for June which could fall short of estimates. In other news, US listed Chinese companies must disclose government interference risks – SEC Official. China extends their crackdown on technology companies, focusing now education firms. The US Senate bipartisan infrastructure talks stall with growing disagreements between Reps & Dems. US/China summit remains at a standstill as both sides insists the other must make concessions for ties to improve. In the currency markets, net long US$ positions on the CFTC hit 14-month highs amid an increasing risk-off mood. CNY weakens on rising Sino/US tensions and Chinese equity markets dropping to 7-month lows. Trading currencies AUD, NZD and ZAR all weaken ahead of the FOMC. CNY falls 0.3%, while Asian currencies are down 0.2% on average vs US$. Trading currencies are mixed with JPY up 0.2%, while MXN weakens 0.2%, AUD is down 0.35%, NOK & ZAR fall 0.55%, NZD tumbles 0.75% vs US$. Intraday US data releases and Fed updates will provide market direction.

Oil prices hold steady as tight supply balances out the impact on demand from surging covid cases worldwide. Investors are waiting for American Petroleum Institute on Tuesday and US Energy Admin on Wednesday for evidence that demand is holding. C$ fails to advance beyond 1.25 vs US$ as investors remain cautious ahead of the Feds rate decision and Canadian CPI on Wednesday. Expect the loonie to remain vulnerable to further weakness as risk off sentiment remains ahead of the FOMC statement on Wednesday. Support sits at 1.2497, a break could see a retest of 1.2425 while resistance resets at 1.2605, if breached look for 1.2730.

Euro holds below 1.18 amid risk-off sentiment and US data releases. The combination of Sino/US tensions, the FOMC and rising covid cases across the US is seeing a return to safe-haven US$. The upswing in covid infections despite increasing vaccination levels in Europe and the US has impacted consumer confidence levels in the EU, with markets watching todays US consumer confidence closely. The elephant in the room remains the Fed and their comments on Wednesday will drive US$ short term direction. Overall, we remain cautious for further Euro weakness amid rising risk off sentiment. Support holds at 1.1750, if breached look for a move to 1.17, while resistance remains at 1.1870.

EURGBP holds stable as safe haven US$ & JPY remain dominant with rising covid cases and ahead of Wednesdays Fed comments. Support holds at .8550 (1.1695) if breached look for .8495 Apr 5th (1.1770) with resistance remaining at .8665 (1.1540).

GBP dips below 1.38 as safe haven US$ buying outweighs falling UK covid cases. The UK covid cases fall for a 6thconsecutive day which is bring fresh confidence to the pound. The FOMC and US data continue to dominate investors focus and keeping pressure on the pound amid risk-off sentiment. An extension of decreasing covid cases within the UK will position the GBP for a rebound vs its peers. Support resets to 1.3740 while resistance holds at 1.3825, if breached look for 1.3900 next.