Friday May 13th, 2022

The US$ slips, oil prices edge higher, while equity markets and US treasuries firm amid improving market mood. The US$ slips from its highest close in two decades, while equity markets firmed after Fed Chair Powell pushed back against speculation of steeper interest rate hikes. The Fed Chair reaffirmed the Fed is likely to raise rates by ½% at each of its next two meetings and that it isn’t ‘actively considering’ a ¾% move. Concerns that tightening monetary policies, China’s ongoing covid lockdowns and Russia’s war in Ukraine will spark a global economic downturn which will likely continue to overshadow market sentiment. Intraday focus will be on the key Michigan Consumer Sentiment Index (May) & two Fed speakers for direction. In other news. Fed Chair Powell warns that taming US inflation will cause ‘some pain’ (FT). China says it will ‘strictly limit’ citizens from going abroad tightening controls on ‘unnecessary’ overseas travel. Baltic states support Finland & Sweden’s expected NATO accession which is expected to dramatically improve security. Ukraine forces thwart Russian armoured column crossing a river in the Donbas region. The currency markets. The US$ index dips but remains on course for its longest streak of weekly gains since 2018. AUD & NZD remain under pressure near 2-year lows as growth forecast for China were downgraded. CNY is flat, while Asian currencies are down 0.1% on average vs US$. Trading currencies are mixed with JPY down 0.4%, while NZD & ZAR are flat and CHF, MXN & NOK firms 0.2%, AUD is up 0.4% vs US$.

Oil prices firm in early trading, but oil remains set for a weekly drop as ongoing fears of weaker demand limited oil gains. C$ firms from yesterday’s 18-month low at 1.3076, but ongoing global economic concerns and slightly dovish BoC comments on Thursday will likely keep pressure on the C$ in the short term. The Fed Chairs cautious comments on rate hikes helped stall US$ strengthening as the focus shifts to the US consumer sentiment report today for intraday direction. Support holds at 1.2892, while resistance remains at 1.3090 (Nov/20).

Euro weakness continues despite improving EU data. Eurostat reported that EU industrial production contracted, but at a softer than expected rate in March -1.8% vs expected -2%. Euro remains below 1.04 and continues to be at the mercy of the US$ as investors await the US consumer sentiment report for direction today. Thursday saw Euro touch 1.0355, its lowest level since January 2017 and looks on track to extend losses towards parity vs US$. Support lowers to 1.0335, while resistance resets to 1.0475.

EURGBP firms as UK Foreign Secretary Truss reportedly warned the EU Commission that the UK wouldn’t have any other choice to alter the NI protocol if the EU failed to show the ‘requisite flexibility’. Support holds .8485 (1.1785) while resistance remains .8600 (1.1628).

GBP holds below 1.22 amid ongoing US$ strength and domestic economic concerns. Ongoing UK growth concerns, soaring inflation and increasing Brexit jitters continues to weigh on the pounds ability to strengthen vs US$. The risk-averse market sentiment and a hawkish Fed continues to support the US$ and increases the prospect of GBP testing 1.2000 vs US$ in coming months. Support holds at 1.2160 while Resistance remains at 1.2285.