Tuesday March 16th, 2021

Equity markets up, US treasuries and US$ hold steady, while oil prices dip as markets await the FOMC meeting. The Fed decision on Wednesday will be watched closely for hints of raising rates earlier than expected. The Fed is expected to walk a fine line between acknowledging the improving economy without creating fears of rising borrowing costs. Reports that President Biden is planning fund the US$1.9T stimulus bill by increasing taxes are expected to focus individuals with +US$400k income, taking corporate tax from 21% to 28% and raising higher capital gains. The measures will likely take effect in 2022, with estimates of raising US$2T to US$4T over a decade. Later this week, China & US will meet in Alaska in their first high level meeting in hopes of easing some of the current Sino/US tensions. China’s Premier Xi warns focus on tech excess, focusing on “platform” companies and orders regulators to step up oversight of internet companies. CNY holds steady while Asian currencies drop 0.1% on average vs US$. Trading currencies are mixed with JPY & NOK are flat, MXN is down 0.1% AUD & NZD fall 0.25%, while ZAR strengthens 0.25% vs US$. Alongside the FOMC, focus will be on US Retail Sales data released this morning for signs of US economic growth.

Oil prices continue to fluctuate amid rising US stockpiles and covid-19 demand concerns. The halting of the AstraZenca vaccine by a number of EU countries added to risks to a demand recovery as EU vaccination rates stall. C$ eases off its 3-year highs as oil prices drop 1%, the loonie is finding support from rising domestic yields which hit 14-month highs and Monday’s stronger home sales data. Market sentiment is turning away from a stronger C$ with US commodity futures showing “long” C$ positions fell by 30%. Bias remains to buy US$ on current dips. Support at 1.2439, if breached we could see an extension towards 1.2395 (Feb2018) while resistance lowers 1.2550.

Euro holds steady despite stalling vaccination rollouts. Germany & France join other EU countries halting the AstraZeneca vaccine and adds to the general concerns that the EU will lag behind the US & UK in the recovery from the pandemic. On a positive note, German ZEW survey came out better-than-expected, while Italy and France CPI came out within expectations. Eur strengthen remains linked to pandemic recovery, so the further vaccination delays will likely keep Euro under selling pressure. Support holds at 1.1880 and resistance remains at 1.1975. 

EURGBP rallies and the pound weakens after the BoE Bailey commits to further bond buying. Bias overall remains bearish Euro as vaccinations stall as more countries halt the AstraZeneca vaccine. Bias to sell towards 8650 levels.  Support holds .8560 (1.1682) with resistance lower 8650 (1.1560).

GBP tumbles vs US$ as BoE commits to bond buying. The BoE Governor Bailey stated his commitment to continue the bond buying program despite signs of UK economic recovery. Governor Bailey went on to say that the economy is expected to get back to pre-pandemic size by the end of 2021 and inflation will return to 2% within the next 3-months. Adding to additional pressure to the pound was the announcement that the EU will launch legal action against the UK over alleged violations of the Brexit agreement. Focus will be on US data & the FOMC for intraday direction. Bias to buy GBP on dips. Support drops to 1.3780 while resistance rests at 1.3880.