Overnight Headlines

*USD edges higher, hitting best levels since April

*US equities rebounded strongly recording the biggest daily advance since March

*Vix drops below 20, US Treasuries ended mixed

USD touched a high of 93.17 on the DXY, its best levels since the start of April before pulling back into the close. Building on the positive momentum of last week, buyers are active this morning pushing EUR/USD closer to 1.1704 and GBP/USD to levels not seen since February. AUD and NZD have been hit the worst with those majors moving down below 0.73 and 0.69 respectively, levels last touched in November last year. USD/JPY tracked higher Treasury yields and has now virtually erased Monday’s drop.

US equities bounced back strongly after Monday’s rout with the S&P500 enjoying its best day since March. Performance was driven by cyclicals over more defensive stocks with small caps up 3%. Asian stocks are generally higher while futures indicate a positive start in Europe and flat open Stateside.

Market Thoughts – Doubts persist

Doubts on growth are still evident in markets after the rebound in global infections caused by the more aggressive Delta variant. There is also uncertainty over whether the recent surge in inflation can be seen as an omen of current and future growth or perhaps an obstacle.

The shift in this inflation narrative has been shown by the free fall in oil prices. In the wake of the OPEC+ deal, many oil traders have forecast we will see higher prices. Yet Brent has tumbled from above $73 to $69 while industrial commodities like copper have also met strong headwinds. Inflation expectations are easing but the stabilisation yesterday in real yields may result in some less forceful repositioning in these summer markets.

Chart of the Day – GBP/USD beaten down

Aside from the commodity currencies, GBP has suffered this week and month with “Freedom Day” being a real noose around sterling’s neck. The uplift from a possible brightening economic picture has been severely dented by rising Delta infections. Potential future lockdowns are being touted with the UK government potentially struggling to ride out surging case numbers. An active Bank of England which has to remain more cautious over the near term can be added to the mix.

Cable is down for a fifth straight day and heading to levels seen at the start of the year. The break below the July low at 1.3731 and March / April troughs around 1.3667 means those levels become resistance. Trading below the 200-day SMA at 1.3694 also won’t help the bulls. Support sits at the 23.6% Fib retracement of the March 2020 to June 2021 gains at 1.3579.