Wednesday August 4th, 2021

The US$ and oil prices are flat, equity markets are up, while US yields are mixed ahead of US service PMI and jobs data. The ISM Service PMI is predicted to hold above 60, reflecting continued strong growth in America’s largest job sector. The ADP Employment Change is expected at 695k, the result will be watched closely as a clue to Friday’s key US NFP report. If we see any results outside expectations, expect to see US$ volatility increase. Fed Reserve V.Chair Clarida is expected to speak about the US economy today and could provide insight to the Feds thoughts on tapering asset purchases. The US$ is holding steady after falling 1% over the last 2-weeks after it hit a 4-month peak as US rate hike expectations fade and investors worry about the US economic recovery as covid cases rise. In other news, the US infrastructure bill continues to go through the process before a vote which could be as soon as Friday. German service sector grows at a record pace, its strongest month in 24-years after the covid lockdowns were lifted. Treasury Secretary Yellen is expected to warn today that enacting President Biden’s economic agenda is critical to maintaining America’s status as the world’s superpower. Covid, China reports most new Covid cases since January amid the Delta variant surge. Japan warns of unprecedented Covid spread as Tokyo cases hit new record highs. In currency markets, NZD extends gains as markets anticipate a NZ rate hike within weeks, while AUD remains firm after the RBA tapering comments. CNY edges stronger, but its strength is capped on rising covid cases. CNY is up 0.15%, while Asian currencies are mixed with THB, PHP & MYR down 0.2% on average while SGD, TWD & INR are up 0.2% on average vs US$. Trading currencies saw JPY down 0.1% on covid concerns, while MXN edges higher 0.1%, NOK is stronger 0.2, AUD & ZAR are up 0.3%, NZD rallies 0.9%. Focus will be on the Fed, US Jobs & PMI for intraday direction.

Oil prices weaken in early trading as rising Delta variant cases continue to cap oil gains as demand concerns increase. Oil is finding some support towards US$ 70pb for Brent Crude from falling US inventories and rising Mid-East geopolitical tensions. C$ remains under pressure as rising covid cases continue to weigh on oil prices. Adding pressure to the loonie, Tuesday’s Canadian manufacturing PMI fell to its lowest level since Feb, primarily related to covid related supply chain issues. Alongside US data releases today markets will be focused on Canadian building permits and oil prices for intraday direction. Support resets to 1.2475, while resistance sits at 1.2540, if breached look for 1.2605. 

Euro fails to make gains despite strong German PMI results. Euro fails to extend gains on fears that China will announce severe restrictions as covid cases continue to rise. German Markit Service PMI grew at its fastest pace in 24 years to 61.8 in July from 57.5 in June, while the composite PMI surpassed the record set in June 2006. Domestically covid cases are decreasing, in Spain it estimates 80%-90% of the population having antibodies and are approaching herd immunity. Focus will be on US data for intraday direction. Support lowers to 1.1795 with resistance resets to 1.1900.

EURGBP weakens as investor optimism increases as UK covid rates fall and Brexit concerns ease should support the pound going forward. Support resets to .8495 Apr 5th (1.1770) with resistance remaining at .8600 (1.1628).

GBP holds on to gains as investors are poised for Thursday’s BoE rate decision. The pound remains firm, but stalls below the key 1.3950 level as markets await the BoE rate decision tomorrow. Domestically, UK covid cases extend their declines and look set to break below 20k cases per day. The UK service PMI exceeded expectations up 59.6 vs expectations 57.8 in July, the improvement comes despite supply chain issues and staffing shortages. Intraday US jobs and PMI data will provide direction to markets. Support holds at 1.3890 while minor resistance at 1.4010, if breached we could extend to 1.4132 (Jun16th).