Monday January 31st, 2022

The US$ dips, oil prices firm, equity markets are mixed, while US yields firm amid a quiet to a big week of data. The US$ retreated from its highest level since July 2020 as safe haven demand eases in thin Asian trading with many countries including China out for the Lunar New Year Holiday Break. The Ukraine crisis remains front and center as Russia adds more troops around the Ukraine border and US Senators are close to finalizing a deal on legislation to sanction Russia. Markets will be focused on several key events this week including key central bank meetings for the ECB, BOE & RBA, as well as US Jobs data on Friday. In other news. Rising geopolitical tension and oil demand seen growing by up to 5 million bpd in 2022 sees oil prices set for strongest January in 30 years. Fed’s Bostic tells the FT that the central bank could hike rate by a ½% if needed in March. Chinese Manufacturing & Non-Manufacturing PMI came in weaker than expected for January, which highlighted economic slowdown concerns amid domestic surging covid cases. Covid. China has detected 119 cases of covid among athletes and personnel linked to the Beijing Winger Olympics. In Canada a rally against vaccine mandates blocks Ottawa for a 2nd day. In the UK could change mandatory covid vaccine for health staff. In currency markets. AUD & GBP firm ahead of this week’s central bank rate decisions, Russian RUB hits a 1-week high and Turkish Lira firms 1% as the US$ eases. CNY firms 0.1%, while THB strengthens 0.4%, INR rallies 0.5% and other Asian currencies are flat on average vs US$. Trading currencies are mixed with JPY down 0.25%, while MXN is flat, NOK is up 0.1%, CHF & ZAR gain 0.3%, NZD firms 0.65% and AUD rallies 0.9% vs US$.

Oil prices is set for its strongest January in almost 30-years on a combination of ongoing supply issues, dwindling inventories and booming demand. The Economist Intelligence Unit said, “given how tight markets are, oil certainly can rally above US$ 100”. C$ recovers from its biggest weekly decline since August as risk aversion eases and oil prices continue to rally. The C$ continues to balance between rallying oil prices, a cautious BoC and a Fed turning more Hawkish. Support resets to 1.2710, if breached look for 1.2647 next, while resistance remains at Friday’s high 1.2796

Euro stalls below 1.12 despite a weaker US$ and ongoing Ukraine tensions. Euro remains under pressure as investors remain focused on the more hawkish from the Fed and the rhetoric of a 50 bp’s hike in March. Focus will be on the ECB rate decision on Thursday, but overall investors see little chance the central bank will change its view on interest rates in 2022. Our bias remains bearish for Euro into Feb. Support resets to 1.1120, while resistance lowers to 1.1195.

EURGBP is flat holding near multi-year lows as investors focus on the BoE & ECB rate decisions this week. Support holds .8280 (1.2077) while resistance remains at .8400 (1.1905) 

GBP retests 1.34 in a choppy start to trading. GBP rallied in early trading after the UK Foreign Secretary Truss hinted that the PM’s job is safe despite the ongoing ‘Party-gate’ issue. The Lockdown party report delivered to Downing Street, but it’s unclear what will be published after the police requested “minimal reference” to events it is investigating. Investors will be focused on the BoE and the prospect of a 2nd interest rate hike. Support resets to 1.3375, while Resistance rises to 1.3450.