Wednesday September 8th, 2021

The US$ extends gains, oil prices rise, equity markets weaken, while US yields dip ahead of jobs data, Fed Williams, and the Fed’s Beige Book. The US$ is strengthening to a 1-week high amid a growing cautious mood and despite a dip in US yields. Markets will be focused on Fed Williams comments after Fed Bullard in an interview with the FT today saying the Fed should move forward with a plan to taper despite a slowdown in job growth. The Jolts jobs opening (Jul) is expected to dip slightly from June and the Fed Beige Book which reports on the current US economic situation will be monitored closely for intraday direction. In other news, The US House panel sets to debate on its portion of the US$3.5T bill to advance the legislation. Axios on Tuesday cited sources as saying that Manchin would support just US$1.5T in spending. B.O.Japan says yields will stay low even under more expansive fiscal policy. The White House said, US states to decide whether to extend lapsed jobless benefits. Covid, The WHO says covid will mutate like the flu and is likely here to stay.  Top Pfizer scientist defends vaccine booster push, he has opted for low-dose shots to avoid side effects. The UK is confident booster shots will be offered as early as this month. In currency markets, GBP weakens ahead of its new UK tax vote. PLN edges lower ahead of its central bank rate meeting. CNY edges up 0.1% as its central bank downplays imminent liquidity support, while Asian currencies weaken 0.2% on average vs US$. Trading currencies are mixed with JPY & MXN are up 0.1%, NZD & ZAR are flat, while AUD & NOK dips 0.15% vs US$. 

Oil prices climb on slow US supply recovery with 80% of US Gulf producing remaining offline. Capping oil prices will be the ongoing increase of supply by OPEC+ and the prospect of Iran’s resumption of oil expects into 2022. C$ holds below 1.27 as oil prices rebound and US yields ease, but markets remain cautious ahead of BOC rate decision and the Ivey Purchasing Manager index. The BOC is expected to keep rates unchanged at 0.25%, but markets will be looking for hints of a possible hike in 2022. Support resets to 1.2620 while resistance resets at 1.2710.

Euro re-tests the 1.1800 support amid a firmer US$ and mixed ECB expectations. The US$ is rising amid a rise in risk-off trading from increasing delta-variant concerns and conflicting messages from ECB policy makers which failed to ease pressure on the Euro. ECB Holzman comments indicating the possibility of a sooner than expected move to normalize monetary policy failed to rally Euro bulls. Expect Euro to consolidate ahead of tomorrow’s key ECB rate meeting. Support resets to 1.1770, while resistance lowers to 1.1880. 

EURGBP retreats from recent highs slipping below .8600 as strong rhetoric of normalized monetary policy failed to strengthen Euro. Support resets to .8500 (1.1765) while resistance resets to .8600 (1.1628) if breached look to .8650 (1.1560).

GBP continues under pressure amid new tax vote and a strengthening US$. The pound falls for a 3rdstraight day as the US$ strengthens and investors digest the UK’s announcement of a tax hike to fund health spending and social care. Lawmakers will be considering the new 1.25% tax which will raise GBP12bn a year to tackle the health care backlog cause by the covid pandemic. “There is a risk higher taxes will undermine household consumption and hiring by businesses. At the same time fiscal tightening will ease the need for the BoE to tighten monetary policy”.  Support holds at 1.3750 and while resistance lowers to 1.3855.