Wednesday February 3rd, 2021

US stimulus and vaccine developments boost equity & oil markets, currency markets are mixed, while US Treasury yields supports the US$. The US House and Senate both voted on the US$ 1.9T covid relief plan on Tuesday evening. Once passed in both chambers, it allows the Dem’s to approve the relief plan without any Republican support. Also, in Washington the Former President Trump’s legal team responds to the Senate on the article of impeachment against him. On the vaccine front, the Russian vaccine Sputnik V showed 91.6% effectiveness in phase-3 trail and is viewed positively as another weapon in the arsenal to fight the coronavirus globally. CNY weakens as state banks bought US$ ahead of the Lunar New Year holidays, while NZD strengthens on strong jobs data. CNY dropped 0.1%, while Asian currencies fell 0.15% on average vs US$. Trading currencies were mixed with JPY, NOK & ZAR are down 0.1%, MXN is down 0.2% while AUD & NZD strengthened 0.15% vs US$. Alongside US Stimulus updates, focus will also be on Fed Speech’s, as well US Service PMI and Services Employment Index for intraday direction.

Oil prices continues to extend their gains hitting fresh 11-month highs after OPEC output cuts start and US crude inventories fall. Oil prices were buoyed by the latest assessment by OPEC that highlights a strong compliance from its members on the agreed upon output cuts during falling demand. C$ strengthened vs US$ as rallying oil prices overcame domestic economic and vaccination rollout concerns. Canadian virus cases have seen a decline and Canada’s signing its first deal to allow vaccination manufacturing domestically is being viewed positively. No key Canadian data today, expect oil prices and US stimulus news to dictate intraday direction. Support holds at 1.2750 with resistance at 1.2881 (2021 highs).

Euro continues under pressure near 2-month lows testing 1.2 level as EU vaccination delays temper investors sentiment. Euro has fallen almost 1% in February vs a strengthening US$. The ongoing lockdowns within the EU saw the service sector contract for its 4th straight month. Vaccine rollouts have stalled and the increase in new virus strains are impacting the prospect of an economic recovery into Q2. Italian political struggle continues, the Italian president has now called in former ECB President Draghi to form a government of national unity. Positive CPI and PPI data this morning had limit impact on Euro. Focus remains vaccination updates, US stimulus and US data releases for direction. Support lowers to 1.1985 (1.2009 new 2021 low) as lower to resistance 1.2090.

GBP weakens vs US$ while holding onto its gains vs the Euro as markets focus on US stimulus and vaccination rollout strategies. Investors stepped back from the GBP as focus shifts to ahead of tomorrow’s BoE meeting where it will publish its findings of a consultation on what negative rates would mean for the banks operations. The pound has benefited from the government’s strong inoculation program, with investors anticipating the UK economy will recover quicker. The UK has requested the EU for an extension to 2023 for the Brexit grace period on trade checks on food goods being moved by supermarkets etc from the UK to NI. Bias to buy GBP on dips. Support lowers to 1.3585 with resistance at 1.3700 and key resistance at 1.3792 (April 2018).