Tuesday May 11th, 2021

The US$, equity & oil markets weaken, while US yields inch higher as commodity prices rally and inflation worries grow. Commodity prices continue to boom with Iron-ore, copper, grains, palladium all hold near record highs and warning of coming inflation. Chinese PPI surges 6.8%, its fastest pace since 2017 adding to global inflation risk. Markets will be focusing on Wednesdays US CPI which may confirm or dismiss markets inflation fears. President Biden prepares to meet with the GOP leaders on Wednesday and is looking for a partisan solution for his infrastructure bill. In other news, the WH administration says Russian group DarkSide is behind the Colonial Pipeline incident. Covid cases continue to surge across India, but on a positive note England recorded its first zero covid deaths for the first time in 14 months. China’s census report showed its slowest population growth since 1953. In currencies CNY weakens 0.12%, while Asian currencies weaken 0.1% on average vs US$. Trading currencies remain positive vs the US$ with JPY, AUD, and NZD are up 0.1%, MXN rallies 0.28%, NOK strengthens 0.35% and ZAR jumps 0.5%. Focus shifts to Fed Williams and Brainard speech’s as well as Jolts Jobs opening for intraday market direction. 

Oil prices weaken almost 1% as markets expects Colonial Pipeline to come back online this week, coupled with falling oil demand in India. Indian oil refiners cut their output as well as oil imports as surging coronavirus cases significantly cuts domestic fuel consumption. C$ tests its highest levels vs US$ in 3½ years boosted by across-the-board commodity strength, ongoing US$ weakness and expectations of BOC tightening its monetary policy. C$ tested 1.2074 in overnight trading but rebounded above 1.21 as oil prices slipped as supply concerns ease. Momentum continues to support a strong C$, but we may see a pull back to mid 1.21’s as oil prices ease. Support (Key pivot) at 1.2057 (Sep2017) with resistance dropping to 1.2145. 

Euro holds above 1.2150 amid upbeat German data and continued US$ weakness. German ZEW Economic Sentiment gauge beat expectations as vaccination and reopening boosts confidence. The primary driver of Euro strength remains the weaker US$, as rising inflation worries grow it should create Euro selling opportunities. The ECB continues its dovish message and continues their bond purchases scheme through Mar22. Intraday markets will focus on US Jolts job data and any Fed comments on inflation. Support holds 1.2100 and resistance at 1.2200.

EURGBP rebounds from Mondays significant sell off, but overall Euro remains under pressure and our bias remains to sell Euro on rallies. Analysts remain bearish Eur looking for a potential move towards 0.83 (1.2048) vs GBP into H2/2021. Support holds to .8585 (1.1650) with resistance remaining at .8700 (1.1495).

GBP consolidates after Monday’s rally, but holds near its multi-month highs. The pound continues to be supported from the conservative party election victories and Monday’s announcement of easing lockdown restrictions. The government’s strong vaccination campaign has taken 1st inoculations to 50% of the population, which has led to the first day of no covid deaths in England for over a year. The Queen gave her throne speech today and the markets are now focused on BOE Governors speech after they announced it would be reducing its asset purchases last week. Support at 1.4070, while resistance resets to 1.4235 (Fed26th), if breached opens the potential of a retest of 1.4376 (April 2018).