The Morning Update

The USD steadies, oil prices weaken, equity markets are down, and US yields are mixed as markets search for direction. The USD snapped a three-week losing streak, while European equities followed Asian markets lower in early trading as markets are looking for direction after mixed US economic data on Friday. Investors are now looking to Thursday's US inflation report and the start of earnings season at the end of the week for further catalysts. Elsewhere, oil prices dropped more than 2% as Saudi price cuts offset Mid-East worries. The US Congress leaders reached a $1.66tn deal on US spending level head of feared shutdown. With the lack of any key economic releases, we expect currency markets to hold within their current trading ranges.

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In other news. Boeing shares slide 8% in premarket trading after FAA grounds dozens of 737 Max 9s. Eurozone retail sales were down in the run-up to Christmas, defying hopes of a rebound. Russia batters Ukraine in its biggest air strike, the New Year's barrage. Evergrande EV unit says director detained on suspicion of 'illegal crimes.' Sony plans to call off a $10 billion merger with India's Zee. Honda is considering a $14 billion plan for EV production in Canada.

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In currency markets. The USD steadies as investors shift their focus to Thursday's US inflation report. CNY holds near three-week lows. AUD & NZD continue under pressure ahead of their retail sales and inflation reports this week.  CNY weakens 0.3%, while Asian currencies dip 0.1% on average vs USD. Trading currencies are mixed with NOK tumbling 0.8%, NZD, SEK & AUD down 0.25%, CHF & ZAR slip 0.1%, while MXN is flat, JPY gains .2% vs USD.

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In commodity markets. Oil and Natural Gas prices sank by 2.2%, Gold and Silver prices weakened by 0.7%, Copper prices slipped by 0.2%, Wheat prices dropped by 1.5%, and Soybean prices eased by 0.3%.

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CAD continues to trend weaker vs. USD on the combination of weakening commodity prices, increasing risk-off sentiment amid increasing geopolitical concerns, and the uncertainty when the Fed will pivot on its interest rate policy. On Friday, we saw CAD employment beat expectations at 5.8%, while the average hourly wages jumped to 5.7% y/y December vs 5% y/y Dec 2023. A rise in the average hourly wages has positive implications for consumer spending, stimulating economic growth. This week sees no critical economic releases for CAD, so we anticipate investors will be patient and await Thursday's critical US inflation report.

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EURCAD tests fresh euro highs as weakening commodity prices pressure the loonie.

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EUR stalling below 1.0950 in cautious markets ahead of US CPI and earnings start. It has been a relatively quiet start to the week, with the absence of high-tier data releases and the increasing risk-off sentiment that has stalled the single currencies' ability to gain traction. Domestically, the eurozone retail sales weakened but beat expectations, and the Sentix Investor's Confidence improved slightly but remains overall bearish. Intraday, with the lack of any key economic releases, we anticipate the Euro remains vulnerable to test lower towards 1.0900.

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GBPEUR holds steady near January highs with the absence of crucial data releases.

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GBP stalls in a tight trading range without key market data. The sour market mood caps the pound's ability to gain upward momentum vs USD. This week sees no key UK data releases, so the pound will be at the mercy of US data releases, market risk sentiment, and earnings to help provide direction to the pound this week. Technically, the pound is expected to remain capped at 1.2770; on the downside, a break below 1.2650 opens up a move to 1.2575 next.