Friday January 21st, 2022

The US$ slips, oil prices and equity markets are weaker and US yields are lower as risk sentiment wanes. Investor sentiment has soured in recent days due to geopolitical concerns, weaker economic data, soaring inflation and the pace of expected Fed policy tightening. Intraday with absence of high-tier economic releases expect markets to remain cautious heading into the weekend with investors focused on Ukraine updates and Wednesday’s key Fed interest rate decision. In other news. Secretary of State Blinken hardens warning to Russia after Ukraine says no attack is ‘minor’, while Russia raises pressure by sending more troops to the Ukraine border. Treasury Secretary Yellen defends President Biden’s economic record, saying she sees a path to lower inflation. The Fed opens the debate over the possibility of a US digital currency. China Evergrande to hire more advisers to help deal with debt. Meat Loaf dies aged 74. Covid. The Indian capital to lift weekend curfew as covid cases fall. Canada, Ontario to begin easing covid restrictions on Jan 31st, with a plan to lift most measures by mid-March. Austria makes covid vaccines mandatory for adults. In currency markets. Safe-haven currencies firm, commodity currencies weaken, and RUB is flat. CNY is flat, while Asian currencies firm 0.1% on average. Trading currencies are mixed as MXN & NOK weaken 0.2%, AUD, ZAR & NZD are down 0.45% while JPY up 0.25%, and CHF strengthens 0.4% vs US$.

Oil prices drop over 1.5% on continuing profit taking, growing risk-off sentiment and on an increase in US inventory. Analysts expect the pressure on oil prices to be limited due to continuing supply concerns and increasing global demand. The C$ weakened on the back of lower oil prices and on a rising risk-off sentiment in early trading. Today investor’s will be focused on CAD Retail Sales for intraday direction, but we expect C$ to remain within its current range ahead of Wednesday’s key BoC rate decision. Support holds at 1.2450, if breached look for a test of 1.2383 (Nov 10th) while resistance resets to 1.2535.

Euro holds steady as risk sentiment sours as geopolitical concerns increase. Euro holds steady as US yields ease, keeping pressure on the US$ offsetting a shift to safe-haven currencies. The ECB showed a shift in opinion that inflation ‘higher for longer’, but on a dovish note concern was expressed about the scaling back of monetary stimulus and asset purchases. We expect Euro to remain stalled within its 1.1280-1.1380 range ahead of Wednesday’s FOMC meeting. Support resets to 1.1280, while resistance lowers to 1.1380.

EURGBP rallies on a weaker GBP as investors take profits on the stronger pound. Support holds .8280 (1.2077) while resistance remains at .8400 (1.1905)

GBP drops as risk-off sentiment puts pressure on the pound as investors unwind long positions. The UK PM appears to have managed to stave off calls for his resignation, but he will now have to repair a deepening rift within his own party. Brexit optimism is growing as Liz Truss aims to agree NI protocol deal with the EU by the end of February. Bias remains to buy GBP on dips. Support holds at 1.3300 and Resistance sits at 1.1360.