Tuesday September 7th, 2021

The US$ strengthens, oil prices slip, equity markets are mixed, while US yields rise as investors shift expectations of Fed tapering to November. The chances of Fed easing in September faded after Friday’s weak NFP which added the fewest jobs in 7-months. Investors are now convinced that the Fed will taper its stimulus purchases in November, boosting US yields and stimulating fresh US$ buying. In other news, El Salvador becomes the first country to adopt Bitcoin as its official currency. Eurozone (Q/Q) Q2 GDP beat expectations, up 2.2%, while EZ ZEW Economic Sentiment fell significantly below expectations. Goldman Sachs economist cuts their US 2021 GDP forecast to 5.7% from 6%. The US Covid unemployment benefit ends for 7.5m Americans posing a potential impact to the US economic recovery amid a covid resurgence. Chinese Exports & Imports unexpectedly jumped beating expectations y/y August. Covid, Indonesia records its lowest rate of positive covid tests below the WHO 5% standard for the first time. India ‘prepares for the worst’ ahead of a possible covid third wave. Vietnam jails a man to 5 years for breaking quarantine rules and spreading the virus to others.  In currency markets, AUD weakens after its central bank stuck with plans to taper its stimulus purchases. ZAR tumbles as US yields rise prompting US$ support. CNY slips 0.15% while Asian currencies weaken 0.3% on average vs US$. Trading currencies are under pressure with NOK flat, JPY & MXN are down 0.15%, NZD weakens 0.35%, AUD falls 0.6% while ZAR tumbles 0.8% vs US$. Expect markets to consolidate with no US economic releases today.

Oil prices weaken as Saudi Arabia cuts prices in Asia, while prices remain steady in Europe. Fears of slowing demands continue to weigh on sentiment, but with over 80% of output in the Gulf of Mexico is still offline and China crude imports rise are offsetting any significant oil weakness. C$ opens weaker after testing its highest level since August 1.2489 as oil prices ease, US yields rise and the US$ rebounds as markets shift their focus to the Nov Fed meeting for tapering. Expect markets to consolidate today as they await the BoC rate decision and the Ivey Purchasing Managers Index tomorrow. Support resets to 1.2508 while resistance remains at 1.2650.

Euro holds above 1.1850 but fails to advance amid mixed EZ and German economic data. EZ GDP Q/Q Q2 and Y/Y Q2 both beat expectations, but the EZ economic sentiment fell to 31.1 vs expectations of 52.2 which put pressure on the Euro. German ZEW economic sentiment fell to 26.5 vs 40 previously. Investors are focused on Thursday’s ECB meeting where optimism is rising that the ECB will increase its hawkish tone and could comment on future stimulus tapering. Support resets to 1.1835, while resistance holds at 1.1910. 

EURGBP rises on growing ECB optimism vs ongoing GBP selling pressure despite Brexit optimism and hawkish BOE comments. Support resets to .8500 (1.1765) while resistance rises to .8650 (1.1560).

GBP dips below 1.38 amid rising US yields and a strengthening US$. The pound is sidelined ahead of Thursdays ECB meeting where expectations are growing of potential ECB tapering. Domestically BoE Saunders said that the UK does not need as much stimulus as before, adding that ‘maybe’ rates could rise ‘in the next year or so’. With no key economic releases from the US today, expect the pound to consolidate and hold its current levels. Support resets to 1.3750 and while resistance remains at 1.3855.