Monday January 3rd, 2022

The US$ weakens, oil prices strengthen, equity markets are mixed and US yields firm on the first trading day of 2022. Markets start the new year in an upbeat mood lifting Equity markets and government bond yields despite surging Omicron, but hopes are high that economic damage from lockdowns can be avoided. Currency markets are active to start 2022 with US$, EUR, GBP weaker and CNY & ZAR rally. Intraday Omicron updates and US Markit Manufacturing PMI will help provide direction to markets. In other news. Turkish inflation hits its highest levels since 2002 at 36% in December, with yearly food prices increasing at 43.8%. US President Biden tells the Ukraine that the US will ‘respond decisively’ if Russia further invades. China’s Evergrande shares halted, set to release ‘inside information’. Covid. Australia to push ahead with reopening amid record covid cases. US Dr Fauci warns of danger of hospitalization surge due to large number of covid cases. Dutch police disperse anti-lockdown protesters in Amsterdam. The US Defense Secretary Austin tests positive for covid. In currency markets. Turkish lira remains volatile rallying 4% vs US$ in early trading despite almost 2-decade high inflation levels. CNY firms 0.3%, while Asian currencies are flat on average vs US$. Trading currencies are mixed with AUD down 0.2%, JPY, NOK & NZD are flat, while MXN is up 0.1% and ZAR rallies 1.15% vs US$.

Oil rallies 1% to start 2022 as Libya shuts down production cutting another 200k bpd as workers try to fix a damage pipeline. OPEC is expected to stick to its plans for a Feb output increase with it meets on Tuesday. C$ gives us early gains despite firming oil prices and bigger picture expectations of potential four BoC rate hikes in 2022. Intraday US Manufacturing PMI and Oil prices will dictate direction with investors focusing on CAD manufacturing PMI on Tuesday. Support at 1.2619 (Dec 31st) and resistance lowers to 1.2735.

Eur holds steady near 1.1350 ahead of US Manufacturing PMI data. Euro continues to be capped at 1.14 with the ECB’s stance on keeping rate hikes on hold in 2022. Supply chain issues kept pressure on German Manufacturing PMI with results coming below expectations, while Spain, France, Italy, and the EU all hit or beat expectations. Support at 1.1300 and resistance at 1.1380.

EURGBP bounces off its lowest levels since Feb 2020 but remains vulnerable to further weakness as BoE/ECB interest rate policy diverge and limited UK covid restrictions continuing to support the pound. 2021 Euro weakened 6% vs GBP. Support lowers to .8375 (1.1940) while resistance resets at .8550 (1.1695)

GBP is quiet, trading in a tight range but is vulnerable to further weakness in 2022. The UK covid cases continue to rise at an unprecedented pace, but the UK government refrain from imposing fresh restrictions. The surge in Omicron cases may cause the BoE to pause tightening interest rates which could put pressure on the pound. In 2022 Brexit issues will remain a key driver for the pound. Support holds at 1.3430 and resistance resets at 1.3525.