Tuesday September 14th, 2021

The US$ is steady, oil extends gains, equity markets are mixed while US yields remain firm ahead of today’s US inflation data. Markets are focused on today’s CPI results for August, with the results providing markets and indication of the Fed’s possible timing on tapering. The CPI is expected to drop slightly to 4.2% vs 4.3% y/y July and if so should provide support to the US$. If we see a drop in CPI below 4%, this will signal some cooling in the US economy and likely put pressure on the US$ ahead of the Feds policy review on Sept 21-22. In other news, the US House Democrats proposed new retirement plan rules for the wealthy as part of the push to make the tax code more equitable and raise money for the US$3.5% budget plan. Oil prices hit 6-week highs as the US Gulf braces for hurricane Nicolas. Dodd-Frank architects call for the US President to reappointment of Fed Chair Powell. Covid, in the UK a new way of covid is predicted as schools return and social mixing increases. The UK announced it will offer Covid vaccines to 12-to-15-year-old as part of their winter plan.  Covid cases in southeast China more than double as the delta variant spreads, impacting air traffic which dropped 51.5% in August y/y. In currency markets, we see the US$ ease from its 2 ½ week highs, while currencies consolidate ahead of the US CPI data release. CNY edges higher up 0.1% while Asian currencies drop 0.15% on average vs US$. Trading currencies are under pressure with JPY down 0.1%, NZD & MXN ease 0.2%, AUD & ZAR fall 0.5% while outlier NOK rallies 0.4% on stronger oil prices. Intraday US CPI will provide direction to the markets.

Oil prices extend their gains from going supply issues as the US Gulf Coast companies are slowly recovering from Hurricane Ida and are now bracing for Hurricane Nicolas. C$ consolidates ahead of the US inflation data, despite a strengthening in US oil prices which hit a fresh 6-week high in early trading. Domestically we are seeing investors keeping to the sidelines as uncertainty ahead of the September 20th election grows. Intraday the US inflation data will dictate direction. Support remains at 1.2625, while resistance holds at 1.2720.

Euro scrambles to hold above 1.18 ahead of the US CPI release. Domestically the EU covid case count remain contained and vaccination levels continue to grow which is a positive for Euro. On the other hand, the ECB’s confusing message of tapering while only “recalibrating” its policy is seen a negative for Euro. All eyes will be on the US inflation results and will provide intraday direction to the currencies. Support resets to 1.1760, while resistance holds at 1.1840.

EURGBP extends its weaker tone after ECB mixed message and focus shifts to US CPI results today for direction.. Support holds at .8500 (1.1765) while resistance resets to .8600 (1.1628) if breached look to .8650 (1.1560).

GBP clings on to Monday’s gains amid mixed UK employment data. The UK reported 58,600 fewer unemployed in August, missing the consensus of a drop of 70k in unemployment. On a positive note, UK employee numbers have hit pre-pandemic levels with the unemployment rate falling to 4.6%. The current UK furlough scheme is being phased out; government supports are easing increasing the potential to see the unemployment rate increase again. Our bias is to sell GBP on rallies as we expect covid cases to rise, unemployment rates likely to rise and BOE to take cautious tone and stall rate increases. Support holds at 1.3785 and while resistance resets at 1.3900.