The US$ is steady, oil prices remain strong, equity markets are mixed, and US yields dip ahead of today’s key FOMC statement. The US$ holds below its one-month highs as markets consolidate ahead of the US Federal Reserve statement at 2pm est. The Fed is widely expected to acknowledge its policymaker’s comments about when and how fast to pare back its stimulus purchases but it’s expected to reframe from any hits of tapering its purchases in the near term. Any hits of tapering or if the Fed takes a less dovish tone on the economy we expect to see further US$ strengthening, alternatively a status-quo stance will put pressure on the US$, so expect the possibility of increased volatility today. In other news, The White House commented that there is no deadline for bipartisan infrastructure deal as negotiations continue. President Biden & President Putin meet in Geneva and offers President Biden a chance to reaffirm the US’s resolve. In Asia, China’s factory output slowed for a 3rd straight month weighed down by disruptions caused by covid outbreaks in its southern export region. Japanese exports jump 49.6% y/y its biggest jump in 41 years driven by a rise in machine orders. In currencies CNY strengthens 0.15%, while Asian currencies are flat on average vs US$. Trading currencies are mixed with JPY & ZAR are up 0.1%, AUD & MXN strengthen 0.25% and NZD rallies 0.4% while the outlier NOK falls 0.4% vs US$. Intraday US Housing Starts and CAD CPI, but markets will be primarily focusing on the US FOMC statement.
Oil prices continue to strengthen with Brent Crude hitting US$74.73pb it’s highest level since April 2019 on rising demand and falling inventories. C$ fell towards 2-month lows pressured by US$ buying on Fed uncertainty and any signs of tapering in today’s statement will see a resurgence back into the greenback. Outside of the Fed, higher oil prices and relaxing of lockdown restrictions across Canada will continue to provide an underlying support the C$. Intraday CAD CPI will provide early direction to the C$, but the FOMC statement will be the primary market driver today. Support holds at 1.2050 with resistance at 1.2235 if breached look for 1.2311 next (May21).
Eur consolidates around 1.21 level as markets await the Fed comments today. In the EU, Germany’s IFO institute cut its growth forecast down to 3.3% as supply bottlenecks in manufacturing hold back domestic industrial output. The ECB announced it will extend its pandemic relief for bank by another nine-months. The EU raised Eur20B in a fresh 10-year bond issuance, the funds will be designated for the Blocs stimulus package. Bias remains to buy Euro on any dips. Support drops to 1.2035, while resistance resets to 1.2175.
EURGBP weakens following the UK’s strong CPI results which saw inflation dump to 2.1% helping set the stage for a future BoE interest rate hikes. Support holds at .8550 (1.1695) with resistance remaining at .8665 (1.1540).
GBP strengthens above 1.41 on strong UK CPI data. UK inflation hits 2.1% in May which is above the BoE’s target as reopening shopping drives UK inflation higher. David Frost the minister in charge of relations with the EU said the Brexit deal risks undermining the 1998 N.Ireland peace agreement. The stalled UK reopening due to the rising variant levels in the UK is now priced into the pound. The FOMC statement will be the primary market driver today. Support holds1.4040, with resistance resets to 1.4160, key resistance holds at 1.4235 (Feb2021).