Friday March 17th, 2023

The US$ eases, oil prices rise, equity markets rally, while US yields are mixed as risk sentiment improves. Risk sentiment improves after the Swiss National Bank gives Credit Suisse a $54bln lifeline and 11 US banks pledge a combined $30bln in deposits to First Republic in deposits. Currency, commodity & equity markets rebound capping a tumultuous week for global markets, but investors remain cautious heading into next week’s US, UK & Swiss interest rate decisions after the EBC increased by 50bps on Thursday. Today US Michigan Consumer Sentiment Index will be the main focus for investors.

In other news. EU inflation levels hold steady at 8.5% y/y (Feb). China Xi to go to Russia next week for his first visit since Putin ordered invasion of Ukraine. China to cut reserve requirement ration by 0.25ppt, helping stimulate its economy. Credit Suisse sheds another 5% as traders digest emergency liability (CNBC). UK government starts ‘intensive talks’ with education unions on pay and workload. (FT). French President Macron to force pension reform without vote as protests continue. Poland to send MiG-29 fighter jets to Ukraine ‘in coming day’s’.

In Currency markets. Markets are experiencing a relief rally as bank rescues lifts riskier currencies as the US$ continues to ease. Currency markets remain vulnerable to further risk next week heading into the Federal Reserve Interest rate decision which potentially could be 50bps. CNY firms 0.2%, while Asian currencies rise 0.3% on average vs US$. Trading currencies rebound with MXN Strengthens 0.2%, SEK gains 0.3%, CHF & ZAR firm 0.4%, JPY up 0.5%, while AUD, NOK & NZD rally 0.8% vs US$.

Oil prices improve on demand hopes as banking crisis fears ease, the Saudi/Russia meeting which calms markets and as China optimism improves. C$ underperforms against peers gaining marginally vs US$ as BoC pausing rate hikes continues to be an anchor on the currency ahead of the FOMC next week. Alongside US economic data we will be monitoring CAD Industrial Product Price & Raw Material Price Index for intraday direction. Support lowers to 1.3635 while resistance resets to 1.3750.

EURCAD holds near 2-year highs after gaining almost 10% in the last 6 months as BoC/ECB interest rates continue to diverge. Support holds at 1.4535 while resistance remains at 1.4700.

Euro holds above 1.0600 ahead of US data. Euro holds at the middle of it trading range after a volatile week trading in a 1.0500-1.0750 range. This week ECB kept its course on fighting inflation by hiking 50bps on Thursday, while today EU inflation data came out steady at 8.5%. If we don’t see any surprises from today’s US data, we expect Euro to consolidate heading into next weeks Fed, BoE & SNB interest rate decisions. Support holds at 1.0550 while resistance remains at 1.0700.

GBPEUR eases in early trading and we expect further weakness to the pound ahead of BoE rate decision next week. Support holds at 1.1300 (.8849) while resistance resets to 1.1450 (.8733).

GBP paring early gains after BoE survey. The Pound weakens from its highs despite a weaker US$ as expectations increase that the BoE will adopt a dovish stance on future interest rates. The BoE survey: Consumer Inflation Expectations for 2024 declines to 3.9% in February, significantly lower from 4.8% previously. Today US data will provide intraday direction but expect markets to remain contained heading to BoE & Fed rate decisions next week. Support holds at 1.1980 while resistance remains at 1.2125.