Wednesday February 10th, 2021

The US$ stalls near two-week lows as a combination of monetary and fiscal support, robust corporate earnings, alongside expanding vaccine roll outs is bolstering risk sentiment. Treasury yields are flat ahead of Fed Chairs speech and the US inflation data release today. US President Biden on Tuesday said he agreed with a proposal by Dem’s that would limit or phase out stimulus payments to higher-income individuals as part of his US$1.9T covid-relief bill. The US Senate voted to proceed with former US President Trump’s impeachment trial yesterday. Sino/US tensions remain as US President Biden’s pick for budget director voiced concern about potential security threats posed by Chinese technology and accused Beijing of failing to meet bilateral commitments. China’s factory gate prices rose in annual terms in January snapping a year-long decline as demand recovers. CNY weakened 0.2%, KRW rallied 0.5%, while other Asian currencies were flat vs US$. Trading currencies tested lower with AUD & MXN are down 0.05%, JPY down 0.15%, NZD down 0.25%, while NOK up 0.1% on stronger oil prices and ZAR strengthened 0.4% from risk-on sentiment. Intraday focus will shift to US CPI data and Fed Chair Powell which will provide intraday direction.

Oil prices continue to strengthen up 0.75%, testing 13-month highs as Brent Crude breaches US$61.50pb after the surprise news that US crude oil stocks fell. Goldman forecast for crude prices to test US$65pb supported by output cuts and demand hopes remains intact. C$ tests a fresh 2-week high as oil prices extends gains into a 9th trading session. Canada/China tensions are likely to increase as Canada joins the UK and Australia to support President Biden’s administration’s concern that a rising China is a threat that must be countered. Focus remains on Canada’s vaccination efforts which will be critical in facilitating domestic economic growth in 2021. Intraday, BoC Deputy Governor Lane will be speaking about the digital economy and payments innovations, but markets will be looking for clues on the interest rate outlook. Support at 1.2681 (Jan27st) with minor resistance at 1.2745.

Eur holds steady above 1.21 amid improving risk-on sentiment. Eur has advanced as investors focused the weaker US$ and are ignoring the EU’s slow vaccination campaign. The EU’s goal of 70% inoculation levels by the summer is looking elusive as vaccine shortages continue. The virus continues to take its health and economic toll across Europe as many EU countries are expected to extend lockdowns into March. Our bias remains to sell Euro on rallies. Support at 1.2045 with resistance at 1.2135, if breached look for a test of 1.2190. Eur/GBP remains under pressure down 1% mtd with a bias to retest Fridays lows of .8736. 

GBP extends gains towards 3-year highs finding support from risk-on sentiment and its strong domestic vaccine program. GBP holds above the 1.38 level as investors are confident of the UK’s ability to rebound primarily on its strong vaccine program and the conclusion of the Brexit deal. US CPI Data, the Fed Chair’s speech and US stimulus updates will be in focus for intraday direction. Bias remains bullish GBP. Support rises to 1.3750, with resistance at 1.3670, if breached look for 1.3997 (26th Apr 18).