Wednesday May 5th, 2021

Oil prices higher, equity markets are mixed, US$ is flat, while US yields edge higher sparked by the Treasury Secretary’s mixed comments. Treasury Secretary Yellen statement that “interest rates will have to rise somewhat to make sure our economy doesn’t overheat”, appeared to have hit a nerve with the Fed. The Treasury Secretary then clarified her comments stating that rate hikes are “nothing something I am predicting or recommending”. Markets will shift their attention to Rosengren speech today confirmation of the Fed’s ongoing dovish tone. Today’s focus will be on the ADP Employment Change data which will provide guidance to Friday’s NFP data. Sino/US tensions are expected to remain high after the US proposes that the G7 coordinate to counter China’s economic might. In the currency markets, the US$ holds near its fresh 2-week high, CNY and Asian currencies are flat on average vs the US$. Trading currencies are mixed with JPY & MXN are flat while ZAR is up 0.2%, AUD & NOK are up 0.3%, NZD strengthens 0.5% vs US$. Intraday ADP Employment Change, US PMI and Service Employment Index will provide market direction.

Oil prices continue to edge higher as global manufacturing surges, US crude stocks fall and from militant attacks on oil wells in Northern Iraq. Brent Crude starts day stronger up +1% approaching US$70 PB as US and European reduce lockdowns which continues to boost demand optimism. C$ holds near its 3-year highs as oil prices advance and the US$ stalls after Yellen’s statement clarification. Momentum continues to support the C$ strengthening, with markets focusing on the BOC Governor’s speech today for guidance on the banks direction on interest rates, the current strength of the C$ and the status of its ongoing asset purchases. C$ remains strong vs its peers – C$ is up 5% YTD vs Eur, up 10% YTD vs JPY, up 3% YTD vs AUD and is up 1.8% YTD vs GBP. Support (Key pivot) at 1.2246 (Feb2018), if breached look for 1.2057 (Sep2017) while resistance sits at 1.2360, if breached expect a move back to 1.2430. 

Euro holds 1.20 vs US$ amid mixed PMI data and upcoming US data. Italy, France & German PMI data missed expectations while EU as a whole beat expectations. Overall direction for the day will be dictated by US jobs data and US PMI data. Domestically, the European vaccination campaign continues strongly, and markets are reopening as restrictions continue to be eased. Support holds 1.1975 and resistance at 1.2085.

EURGBP continues lower as Eur remains under pressure from US$ strengthening. 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 steady vs US$ amid political uncertainty and ahead of BOE Super Thursday. The Scottish elections are in focus with the SNP saying they will press for a 2nd referendum. The UK PM has reportedly responding saying that he won’t grant another referendum vote to Scotland. Thursday will see the BOC policymakers publish its May Monetary Policy Report – rate decision. Intraday US data releases will dictate direction for the pound. Support at 1.3835, while resistance sits at 1.3935.