Thursday April 21st, 2022

The US$ weakens, oil prices firm, equity markets are mixed, while US yields rise as risk sentiment improves. Equity markets rose on a strong start to the earnings reporting season which allayed concerns of a recession in the US. Wednesday Fed Daly says the US economy can handle rate hikes, but a mild recession is possible. The US$ index extends its weakness falling below 100, while Euro rallies on hawkish ECB comments suggesting rates will rise in 2022. Intraday focus will be on the US initial jobless claims, Fed Chair Powell & ECB President Lagarde discuss global economy at the IMF spring meeting. In other news. Russia claims victory in Mariupol even as fighting persists at the steelworks. President Macron & Le Pen clash on Russia, & EU in an angry TV debate which a snap poll suggests Macron seen as more convincing. In China, Shanghai to keep covid curbs as infections outside quarantine rise again. UK PM says ‘of course’ he will fight in the next election. The currency markets. Euro hits weekly highs on interest rate hike expectations, JPY remains under pressure down 12.5% since January, and CNY tests 6-month lows on the prospect of US Fed hikes. ZAR remains under pressure down 4.25% in April with power cuts suggesting greater economic pressures within the country. CNY down 0.4%, while Asian currencies are flat on average vs US$. Trading currencies are mixed AUD & JPY down 0.1%, NZD weakens 0.25%, MXN falls 0.35%, ZAR tumbles 1.4% while CHF is flat, and NOK firms 0.3%.

Oil prices edge higher as investors focus on lower supply from Russia as the EU considers further sanctions and reports Libya is losing 550k bpd of oil output due to blockades at major fields and export terminals. C$ continues to strengthen on the back of the greater-than-expected spike in domestic interest rates which hit 31-year highs and 2-year yields hitting their highest levels 14-years. The C$ continues to find support from strengthening oil prices and the prospect of further BoC rate hikes to tame the soaring inflation rates. Intraday US jobs, CAD Employment Insurance Beneficiaries change, and Fed Powell comments will help provide direction to markets. Support resets to 1.2400 (April 5th lows), while resistance lowers to 1.2565.

Euro rallies through 1.0900 to a fresh weekly high vs US$ on EU data and a hawkish ECB. Euro breached 1.0900 capitalizing on hawkish ECB comments suggesting interest rates could rise in 2022 and unwinding QE by July. Euro got an extra boost with the annual HICP rising to 7.4% yoy in March. Focus will shift ECB President Lagarde who will be speaking at the IMF spring meeting is expected to expand on this week’s ECB’s hawkish comments. Support rises to 1.0860, while resistance resets to 1.0940.

EURGBP firms hitting a fresh 10-day high on the back of hawkish ECB comments and the prospect of EU rate hikes in 2022. Support resets at .8254 (1.2115) while resistance lowers to .8375 (1.1940).

GBP struggles to strengthen as markets remain sidelined until BoE Bailey on Friday. The pounds edged firmer from the weaker US$, vs a strengthening pound. The pound has been under pressure after the BoE softened its language on the need for more interest rate increases while stressing downside risk to the economy. Any hawkish tones by BoE Bailey on Friday will support the pounds as markets continue to expect 150 bps rate hikes by the end of 2022. Support rises to 1.3000 while Resistance remains at 1.3080, if breached looking for 1.3130 next.