Friday February 11th, 2022

The US$ strengthens, oil prices firm, equity markets are down while US yields are mixed as risk sentiment eases. The US$ index strengthens to an 8-day high vs a basket of major currencies following Thursday’s CPI report showing US inflation spiked to 7.5% which rallied US yields and increased the prospect of multiple Fed rate hikes in 2022. Goldman Sachs economists now expect the Federal Reserve to raise interest rates 7-times in 2022, an increase from the 5-hikes they had seen earlier. Intraday markets will focus on the Michigan Consumer Sentiment Index and the Semi-annual Fed Monetary Policy Report for direction. In other news. The UK economy rebounded at its fastest pace since 1941 with 7.5% growth in 2021. Russia masses more troops near Ukraine border and an invasion could come at any time said Secretary of State Blinken. The US urges Canada to use federal powers to ease border protests disruption.Covid. From Monday, Spain relaxes covid restrictions for UK unvaccinated teenagers. Hong Kong reports another record day of covid cases. French “Freedom Convoys” head towards Paris. In currency markets. Russian RUB firms after the central bank hikes rates 100bps, AUD weakens on dovish central bank comments and CNY weakens as US inflation overshadows robust China credit data. CNY dips 0.1%, while Asian currencies are flat on average vs US$. Trading currencies are mixed with MXN up 0.35%, ZAR up 0.1%, while JPY flat, NZD & CHF are down 0.25%, AUD falls 0.4% and NOK tumbles 0.55% vs US$.

Oil prices remain steady balancing inflation concerns and the prospect of Iranian oil coming online being offset with reduced output from the Middle East keeping supply tight. C$ continues under pressure with the ongoing CAD/US border blockage, coupled with the prospect that Fed will likely hike 50bps after Thursday’s 40-year high CPI vs the BOC expected to hike 25bps in March. Focus will remain on oil prices and the Fed’s monetary policy report for intraday direction. Support holds at 1.2647, while resistance remains at 1.2740, if breached look for retest of 1.2815.

Euro edges lower and remains vulnerable to further weakness. The divergence between the ECB and FED interest rate policies widened after Thursday’s US inflation spike. ECB President Lagarde warns against acting too fast and says any EU rate rises should be gradual. Intraday risk-aversion returned to markets which will add further pressure to Euro as markets focus on the US Consumer report. Support holds at 1.1365 while resistance remains 1.1450.

EURGBP weakens after ECB forecast softer inflation and GDP growth and ECB Lagarde warning against moving rates too quickly. Support lowers to .8370 (1.1940) while resistance remains at .8500 (1.1765)

GBP rebounds above 1.3550 after mixed UK data. Markets continue to be driven by the stronger US$ with pundits betting that the Fed will hike 50bps in March after Thursday’s CPI report saw US inflation spike to 7.5%. The UK economy grew at 7.5% in 2021, although it came after the dramatic 9.4% collapse in 2020. Intraday this will remain a US$ driven market and investors will monitor Michigan Consumer Sentiment Index & the Fed Monetary Policy report for direction. Support holds at 1.3485, while Resistance remains at 1.3600.