Monday August 15th, 2022

The US$ stronger, oil prices tumble, equity markets are up, while US yields are mixed after disappointing China data. The US$ strengthened, commodity prices ease and equity market post tepid gains after China’s economy unexpectedly slowed in July. In a surprise response to China’s disappointing growth the central bank cut its lending rate by 10bps to revive demand as factory & retail activity has been squeezed by China’s covid policy. Today increasing Sino/US tensions, NY Empire State Manufacturing Index, CAD Manufacturing & Wholesale sales will help provide intraday direction. This week focus will be on Wednesday’s release of the Federal Reserve July minutes, UK Inflation report & US Retail Sales. In other news. Oil prices drop over 3% on disappointing Chinese data. China stages more drills near Taiwan as US lawmakers visit. Japan’s Q2 GDP grows 2.2%. Saudi oil giant Aramco breaks its own record with a US$48.4bln profit in Q2-22. Canadian trade chief vows to keep pushing the US on global tax deal. The currency markets. The US$ rallies on safe-haven flows, commodity currencies tumble, and Chinese yuan falls after the weaker than expected Chinese data. CNY & Asian currencies are down 0.4% on average vs US$. Trading currencies are under pressure with CHF down 0.5%, MXN weakens 0.75%, ZAR falls 0.9%, NOK slumps 1.15%, while AUD & NZD tumble 1.4% while outlier JPY is up 0.15% vs US$.

Oil prices tumble by 4% after China’s economic data heightened concern about demand from the world’s largest crude importer while Saudi’s Aramco added further pressure to oil prices after saying it was ready to ramp up output. C$ tumbles in early trading on the combination of increasing Sino/US tensions and slowing economic growth out of China prompting safe haven buying. Falling oil prices adding additional pressure on the C$ as demand concerns increases as China’s economy stalls. Intraday the focus will remain on Sino/US tensions and Oil prices direction. Support rises to 1.2850 while resistance resets to 1.2980.

Euro falls through 1.0200 amid US$ strengthening and growing EU recession fears. Euro breached the 1.0200 support after the dismal Chinese data soured risk-on sentiment and boosted fresh US$ buying. Growing recession fears across the EU amid the worsening energy crisis adds increasing pressure on the Euro. A Bloomberg survey reported on Monday that economists expect the EU could enter a technical recession amid the deepening energy crisis and record-high inflation levels. Today sees a light US economic docket, so the focus will remain on the increasing Sino/US tensions for intraday direction. Support lowers to 1.0150, while resistance slips to 1.0245.

GBPEUR is flat as the cross is sidelined as both currencies remain under pressure from a strengthening US$. Focus will be on Wednesdays UK inflation report. Support holds at 1.1800 (.8474) while resistance remains at .1.1900 (.8403).

GBP slips below 1.2100 amid ongoing political uncertainty and increasing US$ strength. The pound fell with its peers from the surprised fall in Chinese growth in July, UK political uncertainty and the ongoing energy concerns. In a Reuters poll the BoE are expected to increase rates by ½% in September and a ¼% increase in November before pausing. This week the focus will be on the UK inflation report, the Fed’s July minutes and US retail sales out on Wednesday. Intraday expect the pound to remain under pressure from a strengthening US$. Support resets to 1.2035 while resistance lowers 1.2130.