Wednesday March 3rd, 2021

Equities and oil prices higher, US$ index flat, while US Treasury yields dip ahead of a flurry of US data releases & Fed speeches. Markets will monitor the three Fed speakers today ahead of the Fed Chair tomorrow after last week’s comments that said rising yields reflect economic optimism for a solid recovery. In Washington the Senate will begin debating the US$1.9T covid relief package. The relief plan faces several hurdles but is expected to pass and the President is urging lawmakers to leave as much as possible unchanged. The US President Biden also said that the US will have enough vaccines to inoculate all US adults by the end of May. The prospect of higher yields, US stimulus and the anticipated quicker US economic recovery should support the US$. CNY strengthens slightly up 0.1% while Asian currencies were flat on average. Trading currencies were mixed with JPY fell 0.25%, MXN down 0.4% while the commodity currencies ticked up with ZAR, NZD & AUD up 0.1% and NOK strengthened 0.15% vs US$. Today alongside the Fed speeches, markets will also focus on the key ADP employment change, Services PMI as well as the Fed Beige Book and the EIA Crude Oil Stocks change which will provide intraday direction.

Oil prices rise +1% on speculation that OPEC in its March 4th meeting will retain current output cuts from March into April. C$ holds on to its recent gains with stronger oil prices, positive GDP data and rising domestic yields. Yesterday’s GDP data showed Canada’s economy grew annualized at 9.6% in Q4 as well they Canadian & US 10-year yields narrowed adding further support to the loonie. The primary focus for C$ will be on OPEC’s meeting on Thursday. Today Canadian building permits alongside a flurry of US data releases will provide direction intraday. Support at 1.2580 with resistance at 1.2665.

Eur retests 1.21 boosted by lower US yields and upbeat EU PMI data. US yields stabilized and expectations that the ECB sees no need to for action on bond yields helped boost investor risk mood. With the exception of Germany, PMI data beat expectations across Europe. Opposing Eur strengthening is the gap between the US vs EU’s vaccination campaigns as US vaccination campaign surges. Germany is expected for formally extend its lockdown measures and Italy is also expected to introduce new restrictions until early April. Support at 1.200 with Resistance rising 1.2125. EURGBP weakens 0.15% today, down 0.3% MTD ahead of the UK budget. Bias remains for further short-term weakness in EUR/GBP as the vaccination & economic rebound story continues to favour GBP. Support holds 8600, with resistance at 8735.

GBP reverses from 1.4 highs, back to 1.3950 ahead of the UK budget announcement. A choppy day for the pound, rallying initially on weaker US yields, but reversing its gains ahead of the UK budget. The UK Chancellor Sunak promises to do “whatever it takes” in today’s COVID budget plan having already increased the UK borrowing to its highest level since WW2. The biggest worry for the UK Chancellor is a jobless recovery so he is expected to extend the UK furlough scheme and any increases to corporate tax will be gradual. US data and UK budget will drive intraday direction. Support at 1.3920 while resistance at 1.4015.