The Morning Update

The US$ weakens, oil prices extend losses, equity markets rise, while US yields are mixed ahead of the Fed rate decision. Markets have priced in a nearly 100% probability that the Fed will hike 25bps at the conclusion of its two-day meeting today, taking the bench market borrowing rate target range to 5%-5.25%. Fed watchers expect the Fed pause its current hiking cycle, noting US banking sector concerns, while leaving the door open to tackle future inflation surprises. US Regional banks extend weakn in pre-market, oil prices are down near 5% in May and the US$ eases on the prospect of the Fed turning dovish. Today alongside the Fed rate decision investors will be monitoring the Airbus corporate earnings, US ADP Employment Change & Services PMI will drive intraday currency markets.

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In other news. Russia spy network smuggles sensitive EU tech despite sanctions-FT. Iran seizes second oil tanker in a week. First Republic rescue fails to arrest slide in US regional bank shares. Sudan's warring generals extend theoretical truce but keep fighting. China's AI industry barely slowed by US chip export rules. US fentanyl-related deaths more than tripled over 5-years. Ukraine seeks to bolster air defenses after Russian barrages-WSJ. Eli Lilly Alzheimer's treatment donanemad slowed disease progression in clinical trial.

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In currency markets. The US$ on the defensive ahead of the ADP data and the Fed rate decision. Currency markets are expected to be sidelined today pending the Fed rate decision & the Fed Chairs statement. CNY & Asian currencies are up 0.15% on average vs US$. Trading currencies are mostly stronger with AUD down 0.1%, while MXN, NZD & SEK are up 0.25%, NOK firms 0.4%, CHF gains 0.55%, JPY strengthens 0.65% and ZAR rallies 0.8%.

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Oil prices continue to weaken, down near 5% in May, with prices hitting their lowest levels since March as further rate hikes and increasing recession fears continues to impact demand. C$ is under performing its peers and continues to hold near its 2-week lows despite the weakening US$ as investors await the Fed rate decision today. The anticipated widening interest rate differentials between the BoC vs both the Fed & ECB, alongside weakening commodity prices are continuing to keep pressure on the loonie. On Thursday BoC Governor Macklem will speak about the challenges and risks in getting inflation back on target. Intraday focus will be on US ADP Employment Changes and the Key Fed rate decision to provide intraday direction. Support resets to 1.3580 while resistance holds at 1.3700.

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EURCAD strengthens through 1.5000 as commodity prices ease and investors expect the ECB to hike interest rates on Thursday. Support holds at 1.4950 while resistance holds at 1.5075.

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EUR recaptures 1.1000 as markets expect the Fed to hike, but stall future hikes. Euro experienced some buying momentum ahead of the Fed rate decision helping Euro break through 1.1000 following Tuesdays volatile markets. Investors will be focused on todays ADP private sector employment and services PMI data ahead of the Fed rate decision later in the afternoon. We expect the Euro to be somewhat sidelined as it awaits the ECB interest rate decision Thursday, where the EBC is expected to match the Fed expected to both raise 25bps. Support holds at 1.0965 while resistance resets to 1.1080.

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GBPEUR holds steady as both currencies are sidelined within the US$ weakness, year-to-date the currencies are steady holding unchanged. Support holds at 1.1300 and resistance remains at 1.1400.

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GBP retests above 1.2500 on US$ weakness ahead of the today's key US Fed rate decision. The pound gained vs US$ as the greenback gave up ground heading into an expected dovish tone from the Fed in their statement later in the afternoon. Our bias remains overall bearish for the pound longer-term as we expect the ongoing strikes to continue to impact the UK GDP and Thursday's local elections are expected to put pressure on the conservative party leadership. Intraday the US jobs data and the Fed rate decision / statement will be the primary driver to markets. Support resets to 1.2470 and resistance holds at 1.2580.

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