Friday April 8th, 2022

The US$ edges higher, oil prices firm, equity markets are up, and US yields rise as global rate hikes & geopolitical risks shake investors. Equity markets and oil prices rebound but remain set for weekly declines while the US$ index attempts 100.00, its highest level since May 2020 on Fed policymakers hawkish comments and the ongoing Ukraine war. Pressure continues build against Russia as the US Congress voted to revoke Russia’s “most favored nation” trade status, the UN removed Russia from the Human Rights Council and NATO states agree to supply heavy weapons to Ukraine. Intraday there are no key US economic releases so markets will focus on Ukraine updates, the potential of fresh EU sanctions on Russian oil and Sunday’s French election. In other news. Russia laments troop deaths as Ukraine braces for new Russian offensive (Reuters). President Macron voiced regret for starting his campaigning late which enabled far-right La Pen gaining in the polls. US House speaker Pelosi tests positive for covid, postponing her planned Asian trip. EU & Asia coal users scramble for new sources of coal after of the EU-Russian sanctions. In the UK, more flights are disrupted amid staff absences as covid infections across the UK soared with the more transmissible omicron BA2 variant, official figures showed that some 1 in 13 people now have the virus. The currency markets. Euro remains under pressure ahead of the French elections, GBP slips to 3-week lows vs US$, JPY weakens through 124 & CNY slips due to ongoing covid concerns. CNY & Asian currencies dip 0.1% vs US$. Trading currencies continue under pressure, JPY, MXN & CHF dip 0.15%, AUD slips 0.25%, NOK weakens 0.4%, while NZD falls 0.55% and ZAR is flat vs US$.

Oil prices firm in early trading but look set to drop over 3% on the week after several consuming countries planned to release 240 million barrels from emergency stocks to offset over reduced supplies from Russia from western sanctions. C$ slips to 2-week lows from the combination of hawkish fed comments rallying the US$ and the fall in oil prices. Canada’s budget came out within expectations targeting housing, banks, defense in modest-spending budget. Focus will be on CAD unemployment rate which is expected to drop to 5.4% vs 5.5% previously and then on 13th April the Bank of Canada’s rate decision. Our bias remains to sell US$ on current rallies. Support holds at 1.2450 while resistance remains at 1.2580.

Euro remains under pressure heading into the French election on Sunday. The markets short term focus is the French election as President Macron looks vulnerable as his far-right rival continues to make gains in the polls. Within the current geopolitical conditions and the ECB’s interest rate divergence vs the Fed, a loss for President Macron in France could possibly see Euro slide towards 1.05 further vs US$. EU oil embargo on Russia expected ‘sooner rather than later’ EU foreign ministers likely to discuss further sanctions on Monday (FT). The Euro is expected to remain under pressure into the French election and is vulnerable to further short-term weakness. Support lowers to 1.0835, while resistance holds at 1.0935.

EURGBP recoups lost ground as Euro consolidates with French President Macron managing to maintain a slim lead into Sunday’s election. Support holds at .8300 (1.2048) while resistance remains at .8425 (1.1869).

GBP battles to hold above 1.3000 hitting fresh monthly lows. The pound remains under pressure from the combination of the strengthening US$ and the impact from Russian oil & coal sanctions. The focus will be shifting to next week’s US inflation and UK GDP data out next week which will help provide direction to the respective central banks. Intraday an upbeat market mood is helping the FTSE and supporting the pound above 1.3000. Concern is mounting that a BoE rate increase to control soaring inflation could trigger a recession in the UK as covid rates domestically continue to soar. Support resets to 1.3000 while Resistance holds at 1.3085.