The Morning Update

The US$ is flat, oil prices are steady, equity markets are mixed, while US yields rise ahead of key US data. Markets are steady with the US$ index little changed as investors await US GDP and Jobless Claims to gauge the strength of the US economy. The Fed's preferred inflation gauge, the core PCE deflator, is due on Friday. European equity markets are mixed on positive drugmakers & bank results, but in Germany Deutsche Bank AG dropped after trading revenue disappointed. In the US, Meta Platforms Inc beat analyst expectations boosting Nasdaq 100 futures. Today sees a busy economic docket with US GDP, Initial Jobless Claims, Pending Home Sales, & ECB's Panetta Speech.

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In other news. Meta's revenue growth boosts shares as it touts AI progress-FT. Coal demand dropped in Europe over winter despite energy crisis. Russia digs in as Ukraine prepares to attack. House Republicans pass debt-ceiling hike, hoping to spur President Biden to talks. Strong US consumer spending seen driving the economy in Q1/23. South Korea & US to share nuclear to deter North Korea threat. Bank of Canada considered raising interest rates at its last meeting. Deutsche bank to cut 800 jobs after strong Q1/23.

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In currency markets. The US$ steadies heading into the key US GDP report, while Euro hovers near 1-year highs and CNY remains directionless as domestic economic data disappoints investors. CNY is flat, while Asian currencies slip 0.1% on average vs US$. Trading currencies are mixed with CHF falls 0.3%, JPY down 0.1%, while MXN is flat, AUD, NOK & SEK firm 0.2%, NZD gains 0.4% and ZAR rallies 0.7% vs US$.

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Oil prices remain under pressure after dropping 4% on Wednesday with recession fears overshadowing a bigger-than-expected fall in US crude inventories. Russia says OPEC+ sees no need for further oil output cuts. C$ holds steady near 4-week lows vs US$ & EUR on the combination weaker commodity prices, the prospect that the BoC will keep rates on pause through 2023 and waning risk sentiment. No Canadian economic releases today so the focus will be on the US economic docket, Friday's sees the release of CAD GDP which is expected to slip from 0.5% to 0.2% m/m Feb. Support holds at 1.3480 while resistance remains at 1.3580.

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Euro slips below 1.1050 ahead of key US data release. Euro pulls-back from its 13-month high of 1.1095 as investors get set for the US GDP report for fresh trading impetus. Investors appear to be favoring the Euro after its domestic banks report strong quarterly earnings, while the US stand off on the debt ceiling continues and uncertainty on the Feds next steps is keeping pressure on the US$. Euro has rallied 11% since hitting a lows in Sep 2022 vs US$ & C$, and with the expectations the ECB will maintain its hawkish stance through Q2 we expect to see Euro be supported on dips. Intraday US GDP data will help provide intraday direction. Support holds at 1.0980 while resistance remains at 1.1100.

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GBPEUR slips in early trading, but in the bigger picture the pound has lost 3% over the last 6-months, outperforming its US counterpart, but remains vulnerable to further weakness. Domestic struggles with strikes and growth concerns is expected to keep the pound under pressure vs Euro in Q2. Support holds at 1.1230 while resistance remains at 1.1300.

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GBP remains volatile while holding near its 10-month highs heading into US GDP report. Increasing risk-aversion added some selling pressure to the pound, but the prospect that the Fed will take a less-hawkish stance on interest rates next week is keeping the pound under pinned on dips. The pound will remain at the mercy of Euro and US data releases this week as the Uk has no key economic releases left this week. Domestically ongoing strikes, slowing GDP and a weakening political position for the ruling conservative party, we expect the pound has room to weaken vs its peers through Q2/23. Support holds at 1.2400 and resistance sits at 1.2500.

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