Wednesday February 24th, 2021

Equities, oil, commodities and US yields track higher, while the US$ holds flat ahead of the Fed Chairs second day of testimony. US Inflation expectations continue to rise which continues push US yields higher. Fed Chair Powell plays down inflation concerns, reiterated that US interest rates will remain low, and the Fed will continue to buy bonds to support the US economy. The Fed Chairs dovish comments put pressure on safe haven JPY, CHF and US$ with investors favouring commodity currencies. The US US$1.9T stimulus plan remains on track with the House set to vote on Friday with expectations it will pass with a narrow vote. CNY strengthened +0.25%, while Asian currencies were flat on average vs US$. Trading currencies remain mixed with JPY down 0.6%, ZAR is down 0.1%, while AUD is up 0.15%, NOK up 0.4%, MXN & NZD strengthen 0.55% vs US$. The markets will focus on day-two of the Fed Chairs testimony, as well Fed Brainard and Fed Clarida will also be making comments today.

Oil prices edges higher despite rising US crude stocks levels & Texas output and refineries slowly coming back online. C$ tests fresh 2021 highs at 1.2555 a new 34-month high on a combination of Fed Chair comments and strengthening oil prices.  BoC governor indicated in his speech Tuesday “we can expect a long adjustment process and a protracted recovery”. The BoC governor also said there may be a need for some new targeted programs to address covid-19 crisis. US President Biden and PM Trudeau Pledge unity on climate and China. Focus remains on oil prices and strengthening commodity prices with 1.2522 remaining a key pivot point for C$. Support at 1.2522 (17Apr2018), if breached look for an extension potentially to 1.2253  (1stFeb18) with resistance dropping to 1.2635

Euro holds steady as Fed Chairs comments are offset by the ECB Presidents cautious tone. Euro is up just 0.2% MTD vs US$ as ECB Lagarde’s cautious tone continues to cap Euro’s attempt to rally. The EU’s sluggish vaccination rollout is having significant economic implications for the EU and continues to stall the single currency’s ability to rally.  Germany & France ongoing struggle with vaccination rollouts will likely delay relaxation of current lockdown restrictions. On a positive note, German GDP increased beat expectations. Focus remains of Fed Chairs comments and US stimulus updates. Support holds at 1.2110 with resistance at 1.2220. EUR/GBP continues under selling pressure as EUR falls 2.8% vs GBP MTD testing a new low of 8541. Vaccination rollout remains the primary driver for GBP vs EUR. Support 8426 (Feb2020) with resistance dipping to 8686.

GBP continues onwards and upwards amid UK vaccination optimism and a weaker US$. GBP has rallied +3.25% MTD and tested a new 2021 high at 1.4235 vs US$. The US$ lost ground on the Fed Chairs comments, helping the GBP remain attractive with its high vaccination levels and the prospect of quicker economic traction. Ongoing UK-EU Brexit clean-up talks are progressing well and is expected to be ratified by April. BoE governor will be testifying before parliament where he is expected provide a cautious and dovish message. Support rises at 1.4080 while resistance rises to 1.4200 with the next key resistance sitting at 1.4245 (19th Apr 2018).