Monday July 18th, 2022

The US$ weakens, oil prices rebound, equity markets & US yields rise as risk sentiment improves. Currency & equity markets rebound as dollar demand eased as investors scaled back expectations of a 1% Fed hike with consensus growing the Fed will hike ¾% at its 27th July meeting. Oil prices rallied over 1.5% in early trading after US President Biden’s trip to the Middle East ended without a firm commitment from Saudi Arabia to increase oil supplies. A light US economic docket today with just US NAHB Housing Market Index & CAD Housing Starts. This week the key event will be the ECB Deposit Rate Decision on Thursday. In other news. China braced for renewed lockdowns as Omicron sub-variant spreads (FT). India covid vaccinations hits 2 billion, while new cases hit a 4-month high. In the UK, with no clear candidate the five contenders for the UK PM clash over tax cuts, increase personal attacks and cancelled the final debate this week. Canada sends repaired Nord-Stream turbine to Germany. The currency markets. The US$ weakens allowing the Euro to test a 1-week high, CNY bouncing off a 2-month low, and INR strengthens off last week’s record lows as markets expect the Fed to keep to 0.75% rate hike at its July meeting. CNY firms 0.35%, while Asian currencies are up 0.2% on average vs US$. Trading currencies rebound with ZAR flat, while JPY & CHF up .2%, NZD firms 0.35%, NOK gain 0.5%, AUD strengthens 0.65% and NOK & MXN rally 0.9% vs US$.

Oil prices rally +1.5% in early trading on a soft US$ and the prospect of tight supplies after the President Biden left Saudi Arabia without a deal to increase supply. C$ volatility continues as the loonie rallies in early trading on firming oil prices and a weakening US$ as risk-on sentiment improves. A light economic docket today, this week sees key CAD CPI on Wednesday and CAD Retail Sales. Ahead of the Fed meeting policymakers are now in a press blackout and keeping pressure on the US$, supporting C$. Support lowers to 1.2934 (low July13th) while resistance resets to 1.3030.

Euro extends its rebound towards 1.0200 amid a weakening US$. The expectation of just a 75bp hike by the Fed at its upcoming July 27th meeting and the prospect of a 25bp ECB rate hike on Thursday improved global risk-on sentiment. In the EU domestic headwinds remain with high energy costs, supply chain concerns as China faces fresh lockdowns and the going pressures from the Russian/Ukraine will cap Euro’s ability to maintain a sustainable rally. Support resets to 1.0100, while resistance remains at 1.0200.

EURGBP slips as the pound strengthens on the back of hawkish BoE comments. Support holds at .8435 (1.1855) while resistance remains at .8600 (1.1628).

GBP holds daily gains on hawkish BoE comments & a weakening US$. BoE Saunders commented that in his view, tightening cycle may still have some way to go, potentially to 2%. Domestically the UK PM race continues with the latest debate getting personal as Truss & Sanak argue over tax and others clash over trans issues and Brexit, prompting the candidates to cancel the final television debate. In other news, the UK on course for its hottest day on record. A light day for economic releases, so we expect the pound to hold near its current levels. Support resets to 1.1900 while resistance rises 1.2000.