Monday March 7th, 2022

The US$ & oil prices continue to rally, equity markets fall, while US yields firm as risk-off sentiment intensifies. The risk of a US & European ban on imports from Russia and delays in Iran’s talks are boosting commodity prices increasing the threat of stagflation to world markets. Commodity prices are having their strongest start since 1915 say BofA, with wheat up 60%, Corn up 15%, Nickel up 19% last week, gold passes US$2,000 this morning and speculation rises that oil could hit US$ 200pb in coming weeks. Intraday there are no key economic releases so markets will remain focused on Ukraine/Russia updates to provide direction to currency markets. In other news. The IMF warns that further escalation of the Russia-Ukraine conflict could cause devastating damage to the global economy. China’s economy remains resilient with exports up 16.3% yoy (Jan) while mainland China’s daily local covid cases climb to 2-year highs. Canada tells citizens to leave Russia due to unpredictable security situation. Denmark to boost defense spending and will phase out Russian gas. In the currency markets. The US$ index hits 2-year highs, while INR down 0.9%, KRW down 1.3% & RUB at 131 down 8.25% vs US$, CNY hits record highs vs its peers, while commodity currencies AUD & NZD strengthen and EURCHF drops below parity. CNY is flat while Asian currencies are down 0.4% on average vs US$. Trading currencies are mixed with MXN tumbles 1.25%, NOK & CHF falls 0.9%, JPY weaker 0.25%, ZAR down 0.05%, while NZD is up 0.25% and AUD rallies 0.45% vs US$.

Oil prices saw brent crude briefly spike to US$139pb on the prospect of a Russian oil ban alongside delays in an Iran deal and BoA saying oil prices could hit US$ 200pb going forward. Focus will shift OPEC+ to increase supply and separately the US & Venezuela discussing possibly easing sanctions. C$ rebounds from Friday’s lows finding support as commodity prices spike to decade highs with anticipation that commodity prices will continue to rally. Today C$ has rallied vs its peers – C$ rallied 2.3% vs SEK, – Strengthened 1.2% vs NOK, – firmer 1% vs Euro, – up 0.7% vs GBP, – up 0.6% vs JPY. Intraday all focus remains on Ukraine/Russia updates. Support resets to 1.2635 while Resistance holds 1.2780.

Euro continues under pressure breaking through 1.0850 vs US$. Euro remains vulnerable to further weakness with spiking energy and commodity prices, ongoing uncertainties over the Ukraine/Russia war, challenges from the largest European refugee crisis since the 2nd world war and the increasing divergence of interest rate policy vs its central bank peers. The prospect remains high of a retest of 1.0636 Mar 2020 lows under the current geopolitical uncertainties. Support lowers 1.0800, while resistance lowers to 1.0895.

EURGBP continues under pressure hitting its lowest level since 2016 on interest divergence, surging energy prices and worries over the EU economic outlook with an ongoing Ukraine crisis. Support lowers to .8190 (1.2210) while resistance remains at .8300 (1.2048)

GBP drops vs US$ testing 1.3150 and remains vulnerable to further weakness. Investors continue to shift into the safe-haven US$ taking the pound to a fresh 14-month low. Ukraine/Russia war will continue to dominate currency markets and despite the UK’s rebounding economy and higher interest rates, in the short-term investors will continue to be risk adverse which supports the US$. Support resets to 1.3133 (minor) with potential to test 1.2852 (Nov2020) while Resistance drops to 1.3240.