Wednesday July 14th, 2021

The US$ and oil prices dip from their highs, equity markets are mixed, and US yields drop ahead of the Fed Chairs testimony. Tuesday’s inflation data surprised markets to the upside after core CPI hit 4.5% a 13-year high. Markets will be focused on the Fed Chair Powell’s testimony today to see if he maintains his transitory narrative and repeats his focus on US unemployment rates. Markets are bracing for the potential of more volatility today depending on how the Fed Chairs balances his message towards a transitory narrative or a hawkish tone. In other news, the Senate Dem’s agree to a US$ 3.5T for budget reconciliation bill, and with the bipartisan plan US$600B it adds up to US$4.1T. President Biden heads to Capitol Hill today to discuss with Senate Dems the strategy to advance the emerging legislation. In Asia, the Chinese state media blasts the US plan for a digital trade deal among Indo-Pacific economies. In the currency markets, The US$ index is up 2.4% over the last month but has retreated marginally from its 3-month highs ahead the Fed Chairs testimony. NZD rallies after its central bank announced an end to its pandemic-linked bond purchases and paves the way for a rate hike. GBP strengthens after UK inflation levels hit almost 3-year highs. CNY dips 0.05%, while Asian currencies ease 0.1% on average vs US$. Trading currencies are mixed with AUD down 0.1%, while JPY, NOK & ZAR are up 0.15%, MXN strengthens 0.4% and NZD rallies 0.8% vs US$. Today US PPI data & Fed Chairs testimony will provide intraday direction. 

Oil prices dip from their 2018 highs as Chinese crude imports data showed a 3% drop in half-year demand, its first contraction since 2013. Oil prices are not expected to break out of recent highs until markets see some clarity over the current OPEC+ supply agreement standoff. C$ remains under pressure after the US$ rallied on stronger than expected US inflation data. We are expecting another busy day for the loonie with the BOC expected to keep rates unchanged but is expected to continue scaling back emergency levels of stimulus amid growing optimism and higher vaccination levels. The C$ has room to strengthen with current oil price levels, BoC action and loosening of the lockdown restrictions, but the elephant in the room remains the Fed. Support holds at 1.2450 and resistance at 1.2540.

Euro struggles to rebound above 1.18 vs US$. The stronger than expected US inflation levels drove the Euro to 3-month lows vs US$. Euro direction remains in the hands of the US Fed chair as his comments will driver short term market direction. Once the Fed dust settles, the rise of the Delta variants across Europe which is seeing a rise in restrictions across the Netherlands, Spain, Portugal, Germany, France and others which will increasingly weigh on the Euro. Support lowers to 1.1750 with resistance resetting to 1.1840.

EURGBP dips on a combination of a spike in UK inflation levels supporting the pound and US$ strength having a greater intraday impact on the Euro. Support holds at .8550 (1.1695) if breached look for .8495 Apr 5th (1.1770) with resistance remaining at .8665 (1.1540).

GBP bounces off 1.38 after the UK reported inflation at 2.5% yoy in June. The inflation numbers beat expectations and boosted confidence in the pound, helping it rally through 1.3850. Domestically the UK posted 34k in daily covid cases which is creating concerns for the PM’s ‘Freedom day’ July 19th.  BoE’s Cunliffe commented today that it is difficult to assess inflation outlook in the current unprecedented situation. Intraday the Fed Chair will direct market direction. Support holds at 1.3750 while resistance sits at 1.3890.