Friday November 18th, 2022

The US$ & oil prices edge lower, equity markets firm and US yields rise as the Feds message is digested. Investors consider comments from several Fed speakers on Thursday, St Louis Fed Bullard said that “the policy rate is not in a zone that may be considered sufficiently restrictive.” He suggested that the appropriate zone for the Fed funds rate could be in the 5%-7% range, higher than markets expectations. Today sees a light economic docket, investors will monitor US Conference Board Lending index & existing home sales. In other news. Japanese inflation hits 40-year high, while BoJ sticks to its low interest rate policy. Ukraine energy supply under persistent Russian attack, heavy fighting in east. North Korea fires suspected ICBM into waters off Japan. Traces of explosives found at Nord Stream pipelines, Sweden says. Xi says China to consider holding belt & road forum in 2023. Qatar set to ban alcohol sales in world cup stadiums. Brazil spending waiver may trigger record debt, crimp monetary policy. In Currency markets. The US$ is set for a weekly gain as the Fed pushes back on the prospect of easing interest rate hikes. CNY rises on stable bond market and higher seasonal demand. CNY strengthens 0.6%, while Asian currencies are up 0.2% on average vs US$. Trading currencies improve with CHF flat, SEK & NOK higher 0.15%, JPY up 0.3%, AUD & ZAR firm 0.65% and NZD strengthens 0.95%, while outlier MXN falls 0.2% vs US$.

Oil prices head for a 2nd weekly decline as concern about weakening demand in China and further interest rate hikes by the US. C$ holds steady vs US$ and is outperforming its G10 peers despite falling oil prices. Focus remains on the BoC with expectations of a 25bps rate hike on Dec 7th. Today sees some low tier economic data releases from the US & CAD, which should have minimal impact, we expect C$ hold within its current range. Support holds at 1.3275 while resistance resets to 1.3375.

EURCAD edges higher boosted by ECB President highlighting the prospect of further ECB rate hikes. Support holds at 1.3770 while resistance remains at 1.3860.

Euro steadies below 1.0400 supported by ECB comments. EBC President Lagarde reiterated that they expect to raise rates further to levels needed to ensure that inflation returns to 2% target. Going forward Euro is struggling to regain strength as investors remain cautious of heading into winter with the ongoing energy crisis and the prospect of increasing interest rate differentials between the US & EU. Intraday expect markets to remain relatively stable with a light US economic docket. Support holds at 1.0280 while resistance remains at 1.0400.

GBPEUR remains firm as the pound remains supported by the positive Autumn budget announcement on Thursday. Support remains at 1.1330 (.8826) while resistance holds at 1.1525 (.8677).

GBP struggles to hold above 1.1900. Investors continue to digest Chancellor Hunts Autumn budget where he introduced GBP 55bln in tax increases and spending cuts. Focus shifts to the BoE and whether the central bank will adopt a less-aggressive tightening approach or not. The prospect of a UK in recession, slowing of BoE rate hikes and ongoing energy crisis is anticipated to put the pound back under selling pressure. Support resets to 1.1840, while resistance lowers to 1.1940.