Thursday April 7th, 2022

The US$ firms, oil prices strengthen, equity markets are mixed, while US treasury yields ease post the FOMC minutes. The FOMC minutes highlighted the preference for a 50bp increase and the Fed is planning to start reducing the balance sheet after the May meeting. The US$ Index tested a near 2-year high at 99.77 on the Fed’s hawkish tone while AUD, JPY and Euro remain under pressure. Ukraine requests weapons from the west and seeks ‘ruinous’ sanctions on Russia saying the democratic world must stop buying Russian oil and completely block Russian banks from the international finance system. Intraday markets will be focused on US Initial Jobs Claims as well we will see four Fed policy makers speaking and Ukraine updates will provide currency markets direction today. In other news. Russian attacks on Ukraine civilians stall peace talks say Turkish mediator. China warns of strong measures if US Speaker Pelosi visits Taiwan. French markets are nervous as far-right candidate Le Pen closes the gap heading into the presidential election on the weekend. China’s widening covid curbs are starting to exact a mounting economic toll as well as harming the attractiveness of Shanghai as a financial hub. Italy slashes its growth estimate for 2022 as the war in Ukraine weighs on the economy. The currency markets. Euro continues under pressure from the Ukraine war and jitters ahead of the French presidential elections. CNY is flat while Asian currencies weaken 0.1% on average vs US$. Trading currencies are mixed as AUD weakens 0.45%, NZD slips 0.25%, ZAR & NOK are down 0.15% CHF is flat, while JPY is up 0.1% and MXN is firms 0.2% vs US$.

Oil prices hit a 3-week low on Wednesday after consuming nations announced a release of oil from their emergency reserves. Oil prices rebounded in early trading today as worries over tight supplies continues to provide an underlying support to oil prices. C$ remains volatile slipping to weekly lows as oil prices weakened on Wednesday, while the US$ rallied on hawkish Fed comments. Focus will be on the CAD budget today with Canadian inflation levels sitting near 30-year highs, the budget is expected to have 3 principal themes of climate change, housing affordability and Canada’s global role. Support holds at 1.2450 if breaks look for 1.2383 (Nov 2021), while resistance resets to 1.2580.

Euro continues under pressure from the Ukraine war; French political uncertainty and a hawkish Fed. Euro enters a 6th day of weakness as the policy divergence between the ECB & the Fed continues to widen and is facing the heightened risk of a recession amid the ongoing Ukraine/Russian war. Later today the ECB will release the accounts of its March monetary policy meeting but is unlikely to significantly impact the Euro. Investors are focused on the French presidential elections where President Macron faces off with far-right candidate Le Pen who is showing well in the polls. Bias remains for further Euro weakness in the current economic & geopolitical conditions. Support holds at 1.0870, if breached look for 1.0810 next, while resistance lowers to 1.0935.

EURGBP weakens to almost 2-week lows as French election jitters and divergence in the ECB interest rate policy keeps the Euro on the back-foot. Support holds at .8300 (1.2048) while resistance remains at .8425 (1.1869).

GBP stalls below 1.3100 amid a bullish US$. The hawkish Fed comments is keeping a bullish tone to the US$ and is keeping the pound contained within a 1.3050-1.3100 trading range. The pound is firmer vs Euro, but again this is a weaker Euro vs a stronger pound scenario. Intraday markets will be focused on BoE chief economist Huw Pill comments and US jobs for direction. Support remains at 1.3042 while Resistance holds at 1.3155.