Monday May 23rd, 2022

The US$ falls, oil prices rise, while equity markets & US yields firm on President Biden Tariff comments. Risk on sentiment improves after President Biden said China tariffs imposed by the Trump administration were under consideration. Equity, energy, and currency markets have all rallied aggressively in early trading after President Biden said he would discuss US tariffs with Treasury Secretary Yellen when he returns from his Asia trip. Intraday Chicago Fed National Activity Index, BoE’s Governor Bailey Speech and updates from the Davos 2022 world economic forum will help provide direction today. In other news. In Asia, President Biden launches Indo-Pacific Economic Framework for Prosperity, he calls on OPEC to pump more oil and he also said he is willing to use US military to defend Taiwan. Ukraine President Zelensky gives virtual address at Davos, while Russia intensifies assault in the East & South of Ukraine. The IMF chief warns the global economy faces ‘biggest test since second world war’ (FT). US, Japan, Australia & India to launch tracking system to monitor illegal fishing by China. The currency markets. The US$ index falls almost 1% as risk on sentiment returns on growth hopes. Euro rallied as Lagarde says the ECB likely to end negative rates, suggesting a 50 bps in hikes by September. CNY & GBP hit 2-week highs, AUD & NZD spike on China optimism & NOK spikes over 1% on oil strength and growth optimism. CNY up 0.7%, while Asian currencies are up 0.4% on average vs US$. Trading currencies rebound with JPY & MXN are up 0.3%, while ZAR firms 0.6%, CHF stronger 0.9%, AUD strengthens 1.1%, and NZD & NOK rallies 1.25% vs US$.

Oil prices gain +1% as markets focus on US tariff optimism and increasing demand as North American driving season looms. C$ firms in quiet holiday markets, but as a much slower pace vs its peers and holds above May 5th lows of 1.2777 despite the US$ index tumbling almost 1% in early trading on tariff optimism. This week focus will be on Thursday’s CAD Retail Sales data. Our bias remains bullish C$ as energy & agricultural prices remain high and the US$ continues under pressure. Support holds at 1.2727, while resistance remains at 1.2835.

Euro rallies on a hawkish ECB and a weakening US$. ECB President Lagarde said that the ECB is in a position to exit negative rates by the end of Q3, with markets expecting 25 bps point rate hikes in July & September. President Bident comments that he may be reversing Trump era tariffs on China helped extend the Euro’s rally towards 1.07 as the US$ index tumbled almost 1% as risk on sentiment returns. Intraday markets will remain focused on any US tariff updates and Chicago Fed National Activity Index for direction. Support resets to 1.0600, while resistance remains at 1.0695.

EURGBP rises as Euro rallies on hawkish ECB President Lagardes hawkish interest rate comments. Support holds at .8400 (1.1905) while resistance remains at .8500 (1.1764).

GBP hits 2-week highs on a broadly weaker US$. The pound extends gains on optimism of US/China tariff reductions, loosening China lockdown restrictions and the prospect of a 5th BoE rate hike. Markets will be focused on BoE’s Bailey speech today and Tuesdays PMI data for indication of current levels of economic activity in the UK. Headwinds continue with the ongoing Brexit negotiations and the upcoming release of the highly-anticipate report into the British governments “partygate” covid lockdown scandal which could impact the PM’s political future. Support resets to 1.2500, while resistance rises to 1.2590.