Wednesday May 19th, 2021

The US$ & US yields move higher while oil & equity markets weaken as risk-off sentiment returns ahead of the FOMC minutes today. The US$ bounces off its 2021 lows ahead of the Fed minutes today which are expected to confirm that policymakers think rates will stay at current levels. Last week’s US CPI report showed its fastest increase in decades has increased traders fears that interest rates will be raised sooner than expected. Inflation data out of the UK today saw CPI beat y/y expectations, in the EU CPI y/y came out as expected, while Canadian CPI y/y today is expected to rise to 3.2% vs 2.2%. In other news, Asian countries are forced to lockdown again amid spikes in coronavirus deaths, while the EU agrees to reopen its borders to fully vaccinated travelers. In currency markets risk-off sentiment ahead of the FOMC saw CNY weaken 0.2%, while Asian currencies are down 0.3% on average vs the US$. Trading currencies are also came under selling pressure with JPY, ZAR & MXN are down 0.3%, AUD & NOK weaken 0.6%, NZD falls 0.8% vs US$. Intraday US FOMC minutes will provide market direction.

Oil prices fall -1% as demand outlook hit by rising infections across Asia as well as fears of rising US inflation which could impact economic growth. Expect oil to continue to swing within its current 62-70 range as markets balances EU/US reopening vs Asian/Latam covid infections. C$ weakens as commodity prices across the board sell off in overnight trading. Our bias remains that momentum favours C$ and look for any weakness towards the mid 1.21’s as a US$ selling opportunity. Intraday markets will watch Canadian CPI data, US FOMC and US oil inventory data for direction. Support holds 1.1985 with resistance at 1.2150. 

Euro retreats from 1.2244 its highest level since Feb2021 as US yields and US$ strengthens ahead of the FOMC minutes. Eurozone CPI came out as expected and markets shifts focus to the FOMC minutes due out at 0830 est. The EU continues to its reopening as its vaccination campaign drive is proving successful and the EU agrees to reopen borders to fully vaccinated travelers. Support holds at 1.2170 and resistance holds 1.2250 if breached look for 1.2349 (Jan2021).

EURGBP continues to holds steady within existing ranges as risk-off sentiment helps the US$ rebound ahead of the FOMC. 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 consolidates below 1.42 ahead of the FOMC. The UK CPI rose by 1.5%, with inflation doubling in April after the UK lockdown eased. The pound consolidated as risk-off sentiment returned ahead of the FOMC minutes. Bias remains to buy GBP on dips as the UK economy approaches a full reopening and its vaccination campaign picks ups more momentum. Support rises to 1.4150, with resistance resetting at 1.4235 (Feb2021), if breached expect 1.4376 (Apr2018).