Monday December 5th, 2022

The US$ is flat, oil prices strengthen, equity markets are mixed while US yields rise as markets balance China optimism vs Fed policy. Early optimism on moves by China to further ease covid restrictions faded as Fed rate policy comes back into focus after Fridays NFP spike. Chinese authorities eased covid testing requirements across cities over the weekend with expectations China may announce 10 new covid easing steps on Wednesday. In early trading treasury yields climbed, supporting the US$ after the hotter-than-expected US jobs report last week points to fresh inflation risks unsettling investors. Today focus shifts to US PMI data, Factory Orders, ISM Services New Orders & Employment Index and CAD Building Permits to help provide intraday direction. In other news. Europe cuts gas demand by a quarter to shed reliance on Russia (FT). Eurozone likely heading into a mild recession as PMI declines for a 5th month. Foxconn sees covid hit plant back to full output in late Dec-early January. Canada to send more warships through Taiwan Strait in signal to China. G7 price cap on Russian oil kicks in, Russia will only sell at market price. South African President Ramaphosa says he will fight to keep power. In Currency markets. US$ index rebounds in early trading as US inflation concerns increase. CNY rallies as China eases covid restrictions. ZAR rallies in early trading as President future is discussed. CNY rallies 0.9%, while Asian currencies are flat on average vs US$. Trading currencies are mixed with JPY & MXN weaker 0.8%, NZD & NOK fall 0.25%, while SEK & CHF are Flat, and AUD firms 0.1% vs US$.

Oil prices firm on improving Chinese optimism and as OPEC+ plus agrees to stick to its existing policy of reducing oil production ahead of Russia sanctions. C$ outperforms its G10 peers in early trading as oil prices firm and markets focus on Wednesday’s BoC interest rate decision. Forecasters anticipate the BoC will hike rates from 3.75% by 0.5% to 4.25% at its meeting on the 7th. Intraday US PMI will be a primary driver today. Support holds at 1.3370 while resistance remains 1.3480.

EURCAD eases on weaker-than-expected EU PMI data and higher oil prices helping the C$. Support holds at 1.4080 while resistance remains at 1.4200.

Euro slips below 1.0550 on weaker EU PMI and ahead of US data. Eurozone business activity (PMI) declined for a 5th month in November, suggesting the EU’s economy is sliding into a mild recession as consumers cut spending amid surging inflation, as survey showed. ECB Maklouf expects 50bps rate hike at December meeting, while stressing rate would have to move into ‘restrictive territory’ in 2023. Support holds at 1.0470 while resistance remains at 1.0600.

GBPEUR weakens in early trading as easing risk-on sentiment has the greater impact on the pound which was sitting at 5-month highs. Support holds at 1.1600 (.8620) while resistance remains at 1.1700 (.8547).

GBP drops below 1.2300 vs US$ as risk-on sentiment eases. The pound eases from its 5-month highs in early trading as markets balance the prospect of China abandoning its zero-covid policy vs concern over US inflation and its impact on the next Fed’s rate decision. Focus shifts to US PMI data for intraday direction. Support holds at 1.2210, while resistance remains at 1.2350.