Wednesday May 12th, 2021

The US$ & oil prices rise, equity markets rebound, and US yields dip as markets await US inflation data. Markets are expecting annual CPI y/y to increase from 2.6% to 3.6% potentially its biggest gain in nearly a decade, which is primarily driven by rallying commodity prices. The Fed continues to maintain its stance that price rises are “transitory” and expect rising prices to subside after a few months. The US$ holds near its 2-½ month lows vs a basket of major currencies as analysts expect that the Fed will remain steadfast to its current policies. Tuesday’s US Jobs opening spiked to a record 8.1 million, its highest since 2000 and will likely fuel political debate over the extra $300 in weekly federal unemployment aid. President Biden is set to meet GOP leaders where discussion is likely to include Federal unemployment aid and attempt to find common ground on infrastructure, education, & childcare stimulus spending. In other news the US agrees to remove China’s Xiaomi smart phone from the blacklist. CNY eases as Chinese firms buy US$ to make dividend payments seeing CNY weaken 0.2%, while Asian currencies weaken 0.25% on average vs US$. Trading currencies are under pressure with ZAR flat, JPY is lower 0.05%, NOK & MXN weaken 0.15% and AUD & NZD drop 0.5% vs US$. The focus today will be on US CPI and Fed Clarida’s speech following the inflation data release.

Oil prices strengthen 1% after an IEA comment, “The anticipated supply growth through the rest of this year comes nowhere close to matching our forecast for significantly stronger demand beyond the 2nd Quarter”. C$ holds near its 3½-year highs as oil and other commodity prices continue to extend their gains. Momentum continues to support a stronger C$, if 1.2057 is breached look for an extension to 1.1916 (May2015) next. Today Enbridge must close its line 5 pipeline to Michigan and the legal challenges continue. Intraday US CPI data will dictate direction today. C$ continues to strengthen vs its currency peers and provides good selling C$ opportunities. Support (Key pivot) at 1.2057 (Sep2017), if breached look for 1.1916 (May2015) as resistance holds at 1.2145. 

Euro stalls above 1.21 vs US$ amid mixed EU CPI data. German CPI met expectations while French CPI fell below expectations, as well EU Industrial Production data also fell short of expectations. Domestic vaccination campaign continues to boost investor confidence for the Euro as EU countries continue to ease lockdown restrictions and reopen their economies. Intraday US inflation will likely dominate currency market direction. Support holds 1.2100 and resistance at 1.2200.

EURGBP weakens but markets remain cautious as Brexit tensions rise over fishing and UK access to EU financial markets. Analysts remain bearish Eur looking for a potential move towards 0.83 (1.2048) vs GBP into H2/2021. Support holds to .8585 (1.1650) with resistance remaining at .8700 (1.1495).

GBP holds above 1.41 vs US$ amid positive UK GDP and sustained US$ weakness. The UK economy shrank by 1.5% in Q1/21, better than expected which was dominated by the national lockdown. The UK / France continues their tit-for-tat confrontations overfishing which is expanding to access for UK financials services to the EU and could put pressure on the GBP. Markets “risk-off” sentiment alongside reopening and strong vaccination campaign continues to support the GBP. Support at 1.4070, while resistance resets to 1.4235 (Fed26th), if breached opens the potential of a retest of 1.4376 (April 2018).