Wednesday July 21st, 2021

The US$ inches higher, oil prices strengthen, equity markets & US yields rebound while markets remain risk adverse. The Delta variant of covid is replacing inflation as investors primary source of concern. The WHO chief Tedros warns that the world is going into the ‘early stages of another wave’, while the US CDC estimates the Delta variant is quickly becoming dominant the strain in the US. The US$ edges higher in early trading as investors remain cautious with rising covid cases globally, pushing the US$ index higher 1.25% m/m.  In other news, Senate Majority Leader Schumer defends the tight infrastructure deadline as he attempts to begin a Senate debate today on the still-unfinished bipartisan infrastructure bill, with expectations that the vote will fail. Floods swamp the Chinese city which is the IPhone production hub. In currency news, AUD remains under pressure, down 5% ytd as rising covid cases and fresh lockdown measures puts pressures on Australia’s economy. CNY edges higher on heavy Chinese corporate selling US$ selling. CNY up 0.2%, while Asian currencies are down 0.2% on average vs US$. Trading currencies remain mixed with NZD up 0.1%, NOK rallies 0.4% while MXN is lower 0.15%, AUD & JPY are down 0.25%, ZAR drops 0.5% vs US$. Intraday Covid & Infrastructure updates will provide direction to markets today.

Oil prices rebound for a 2nd day, up 1% despite rising US inventories as demand remains firm despite rising delta variant cases. Going forward we expect oil prices to be capped with the potential of demand fading coupled with additional supply coming back online. The C$ recoups lost ground as oil prices, Cad yields and equity markets rebounded yesterday, and oil prices extends its gains today. Tuesday saw CAD composite house price index rise 2.7% in June, with annualized gains at a record 16%. Focus shifts to Fridays Canadian Retail sales which will be seen as a guide for the BoC policy outlook. Oil prices will be the primary driver for the loonie today. Support resets to 1.2605, Resistance holds at 1.2810.

Euro holds near its 4-month lows amid covid concerns and head of the ECB Thursday. Euro remains under pressure as risk adverse investors continue to favour the US$ safe haven trade. On Thursday the ECB is expected to take a dovish tone following it strategic review. Lower EU inflation and the increase in the Delta-covid across the EU could push the ECB to extend its bond buying scheme beyond March 2022. Support holds at 1.1750, if breached look for a move to 1.17, while resistance remains at 1.1870.

EURGBP is flat near recent highs as rising Delta cases in the UK keeps pressure on the GBP. Support holds at .8550 (1.1695) with resistance remaining at .8665 (1.1540).

GBP bounces off its lows but remains under pressure amid Brexit and Covid concerns. The UK & EU continue to clash as the UK will outline how they want to overhaul the Northern Ireland protocol. The UKs abandonment of covid restrictions on Monday while covid cases continue to rise nationally is weighing on the pounds ability to strengthen. The GBP bounced off its 5-month lows, but under current conditions the pounds remain vulnerable to further selling pressure. Support holds at1.3580 while resistance drops to 1.3690.