Wednesday July 28th, 2021

The US$ & oil prices strengthen, equity markets & US yields rebound as markets eye the Federal Reserve decision. Markets are expecting the Fed to keep rates and its tapering policy unchanged despite rising inflation. The Fed will likely stress markets to remain patience due to rising delta variant cases across the US, with the Fed maintaining a cautious tone. If the Fed refrains from any hint of tightening, we could see the US$ come under some selling pressure. In other news, China state-owned daily papers urges calm after investors dumped mainland shares for a 2nd day. The UK set to ease restrictions and welcome double-vaccinated US & EU tourists. The US CDC revises its indoor mask policy as covid cases rise nationally and in Australia, Sydney extends its lockdown restrictions by 4-weeks as covid cases continue to rise. In the currency markets, GBP holds near 2-week highs as UK covid cases continue to drop. AUD & NZD remain under pressure on China equity jitters. The US$ Index is flat MTD but is down 0.3% on the week as markets wait for the Fed rate decision. CNY strengthens 0.2% while Asian currencies are up 0.1% on average vs US$. Trading currencies remain volatile with JPY, NZD & AUD down 0.2%, while NOK is flat, MXN & ZAR are up 0.1% vs US$. Intraday markets will be focused on the Fed rate decision and the Feds Monetary policy statement. 

Oil prices rise as US inventory drops offsetting short-term virus concerns. API reported a 4.7million barrel drop in US crude inventories as oil supply remains tight despite increasing supply from OPEC. C$ strengthens in early trading as oil prices gain slightly in early trading. Canadian CPI is expected to drop to 3.2% for June vs May’s 3.6% which was its fastest growth pace in over a decade. Markets are vulnerable to increased volatility today, our bias is to sell US$ on any breaks over 1.27. Intraday focus will be on CAD CPI, EIA Crude Oil Stock Change and the key FOMC press conference. Support sits at 1.2497, a break could see a retest of 1.2425 while resistance resets at 1.2605, if breached look for 1.2730.

Euro consolidates ahead of the Fed rate decision. Euro slips from its intraday highs as investors focus on the Feds’ rate decision. With expectations that the Fed is unlikely to adjust its stance on ‘lower rates for longer’, coupled with rising covid cases in the US the Fed is also unlikely to address tapering. If the Fed to adopts a dovish tone, this could help Euro extend its gains vs the US for a retest of 1.19. Support holds at 1.1750, if breached look for a move to 1.17, while resistance remains at 1.1870.

EURGBP weakens as investor optimism returns as UK covid rates fall for a 7th day and Brexit concerns ease. Support resets to .8495 Apr 5th (1.1770) with resistance remaining at .8600 (1.1628).

GBP holds near 2-week highs as covid cases fall for a 7th day. Analysts’ optimism is returning as covid cases continue to fall in the UK with hope rising that the worst is over. Brexit issues have eased, the EU has agreed to pause any legal action over the Northern Ireland protocol, adding further support to the pound. The Fed rate decision and comments will dominate intraday direction, but our bias is that GBP has room to strengthen. Support resets to 1.3800 while resistance rises to 1.3925.