Wednesday August 18th, 2021

The US$ is flat, oil prices rally, equity markets are mixed while US yields firm ahead of the Fed minutes. Fed Chair Powell refrained from any significant comments on tapering in his speech on Tuesday, setting the stage for the Fed minutes today. Public comments from bank officials suggest the Fed minutes could show the Fed is nearing a decision about tapering as early as September. The US$ consolidated in early trading, but bias remains for further US$ strengthening on any tapering suggestions as well as safe haven buying as covid cases continue to rise. In other news, Boston’s Fed Rosengren warns current bond purchase are ill-suited for the US economy, arguing it does not address supply shortages. UK house prices rise at their fastest pace since 2004. China calls for wealth redistribution and clampdown on high incomes. Covid, NZ delays interest rate hike after covid outbreak. Australia, Sydney warned the Delta outbreak has not peaked yet. The US reports a daily caseload of +250k, taking the daily average towards 140k. US Texas Governor has covid and is quarantined, while the TSA extends its mask mandate for transportation through January 2022. In currency markets, CNY edges higher 0.1%, while Asian currencies are up 0.15% on average. Trading currencies are mixed with JPY & ZAR are down 0.1%, NZD remains weak down 0.5%, AUD & NOK are Flat while MXN is up 0.13% vs US$. Today US Building Permits, Housing Starts and the FOMC minutes will dictate intraday direction. 

Oil prices rebound 1% after 4-days of declines but remains vulnerable for further weakness as global demand fades on covid concerns and US shale continues to increase supply. China’s July diesel exports hit 10-month low as refiners run out of export quotas. C$ rebounds from its 4-week low’s 1.2648 as oil prices rebound, but the loonie remains vulnerable to further weakness as risk-off sentiment grows. Intraday focus will be on Canadian inflation numbers, CPI y/y Jul is expected to rise to 2.8% from 2.7% previous. Support holds at 1.2575, while resistance remains at 1.2655 if breached 1.2730 next. 

Euro holds the 1.17 level vs US$ ahead of the Fed minutes. Risk-off sentiment is keeping the Euro under pressure and given the current conditions Euro looks vulnerable for further weakness towards 1.1615. Covid continues to be the main headwind for Euro with growing cases in Germany is raising concern for the EU. The likelihood is that the ECB will remain on the sidelines, keeping rates and asset purchases in place. Support holds 1.1702, if breaks look for 1.1615 next, while resistance remains at 1.1790.

EURGBP holds steady, our bias favours GBP vs EUR in the medium-term and suggest looking for selling opportunities towards .8550 levels. Support resets to .8426 (1.1868) Feb 2020, if breached look for .8274 (1.2086) Dec 2019, while resistance holds at .8600 (1.1628).

GBP continues to hold 1.3750’s amid mixed UK data and head of the FOMC minute. UK inflation missed expectations while PPI and Retail Price index rose. On a positive sign of domestic economic growth UK house prices rise at their fastest pace since 2004. Risk-off sentiment from covid concerns impacting global growth continues to keep pressure on the pound. The primary market driver today will be the Fed minutes, ahead of that expect GBP to consolidate at current levels. Support resets to 1.3725, if breached look for potential of 1.3640 next while resistance lowers to 1.3820.