Tuesday May 25th, 2021

The US$ weakens, oil prices dip, equity markets strengthen, and US yields are flat post the Feds reiteration on inflation concerns. The Fed maintains its transitory inflation narrative in three separate speeches on Monday, their comments removed any short-term taper expectations for markets and saw the US$ come under renewed selling pressure. President Bidens goal of a global minimum tax is closer to reality with the G7 close to a deal on taxation of the world’s largest companies. The White House having trimmed back its infrastructure proposal from US$ 2.25T to US$1.7T continues to work towards a bipartisan solution.  In the currency markets, the US$ index vs a basket of major currencies hits a 4½ month low as the Fed maintains its stance on interest rates and soothes inflation fears. EUR and GBP retests 2021 highs while ZAR rallies to a 22-month high and CNY extends to 3-year highs against the weakening US$. CNY strengthens 0.2% while Asian currencies are mixed and are flat on average vs US$. Trading currencies are mixed with JPY down 0.1%, MXN is Flat while AUD & NOK are up 0.15%, NZD strengthens 0.25% and ZAR rallies 0.7% vs US$. Focus shifts to US Housing Price Index and the Conference Board’s Consumer Confidence measure for May which will likely show an increase in consumer confidence. 

Oil prices eases from a fresh weekly highs after Iran reengages in negotiations with the US & EU and raises the prospect of Iranian oil potentially entering the supply chain. Reopening of EU & US economies, easing covid cases across Asia are providing an underlying support to oil markets. C$ compared to its peers has been relatively sidelined as it balances strengthening oil prices vs the impact of ongoing domestic lockdowns which saw Cad retails sales tumble by 5.1% in April. No Canadian data to watch today, so markets will monitor US data and oil prices to provide intraday direction. Our bias remains a stronger C$ and look to sell US$ on any pull backs towards the mid-1.21’s. Support holds 1.1985 with key pivot at 1.1916 (May2015) with resistance at 1.2150. 

Euro nudges above 1.2250, its highest levels since January on a weaker US$ and positive German IFO data results. German IFO business climate, Current Assessment and Expectations all exceeded expectations. The US$ remains on the backfoot after the Fed reiterated its “transitory” inflation message. EU countries have vaccinated 40% of their population, economies are reopening, and tourism is expected to return across the EU.  Support holds at 1.2170 and resistance at 1.2285 if breached look for 1.2349 (Jan2021).

EURGBP rallies as GBP comes under renewed pressure from rising variant cases across the UK. 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 fails to hold above 1.42 vs US$ as covid cases rise and Brexit issues continue. The EU Commissioner rejects changes to the NI protocol, saying there will be no change to the signed agreement. UK covid variant-cases are starting to rise again which is casting a shadow on the government vaccination efforts and the UK’s reopening strategy. Markets will focus on US data releases and will monitor the UK’s rising covid cases which will provide direction to the GBP.  Support at 1.4100, with 1.4220, with key resistance holding at 1.4235 (Feb2021).