Wednesday February 17th, 2021

The US$ rebounds from 3-week lows with higher yields and the prospect of rising US inflation. Democrats are reportedly planning to pass the US$1.9T stimulus relief plan by Feb 26th.  Boosting the US$ recovery prospects has been the US vaccination program which is now averaging 1.6mio inoculations per day. Equity and gold prices ease today as investors look at the “reflation trade” as yields rise. The Fed minutes and comments will be viewed closely as they continue to ease despite fears of higher inflation. Focus returns to US energy infrastructure as US oil output plunges and over 5 mio Americans are hit by power outages due to severe weather conditions. CNY & JPY are flat vs the US$, while Asian currencies fall 0.2% on average. Trading currencies also came under selling pressure vs US$ with AUD down 0.23%, NZD & NOK are down 0.45%, while MXN & ZAR tumble 0.8%. Markets will be focusing US Treasury yields, Fed Minutes, US Retail Sales and US PPI data for intraday direction.

Oil prices extends its rally with Brent Crude up 1% to US$64pb on Texas supply disruptions due to extreme winter conditions. The cold weather could impact Texas oil, gas & refineries possibly for weeks to come as companies deal with frozen equipment and lack of power. C$ rebounded off Tuesdays highs despite higher oil prices as investors focused on rising US interest rates. Key Canadian inflation numbers out today, alongside US data releases will dictate intraday direction. Our bias to buy US$. Support at 1.2655 with resistance rising to 1.2760.

Euro falls over 100bps from Tuesday’s highs as the US$ advances alongside rising US yields. Markets are focused on the prospects of increasing US inflation with the likelihood of US stimulus by March. Euro could be vulnerable to further weakness with negative interest rates, slow vaccination progress and stalled economic growth. The EU is set to announce vaccine deal with Moderna as EU leaders respond to criticism on vaccination delays and rollout efforts. On a positive note, German ZEW economic sentiment was positive, virus hospitalizations are falling, and a weaker Euro will help the EU recover quicker. Support rises drops to 1.2020 while resistance lowers to 1.2110.

Eur/GBP tests 10-month lows with investors focusing on the UK’s vaccination strategy and its prospect quicker economic recovery. Critical support holds at 8669, if breached EUR/GBP could weaken further to .8292.

GBP drops below 1.39 vs US$ as investors focus on US inflation and rising US yields. The pound dipped on the strong US$ but remains overall resilient vs its peers with +23% of its population already vaccinated. Data releases supporting GBP positive, the UK inflation increased MoM in January, as well UK PPI data also beat expectations. Intraday focus will be on Fed minutes and US data for direction. Support at 1.3825 as resistance drops to 1.3900, while 1.3997 (26th Apr 18) remains key resistance.