Thursday December 29th, 2022

The US$ weakens, oil prices fall, equity markets rise, while US yields ease on Asian tech rally. Markets found support amid further signs of China reopening as China eased its regulatory crackdown alongside easing covid restrictions. Asian gaming stocks rallied after China green-lit the latest clutch of gaming blockbuster titles, reinforcing hopes Beijing is relenting on measures that have weighed on the tech sector. Investors remain cautious after the US, Taiwan, Japan, and other countries will require Chinese travelers to show a negative covid test prior to entry. Today while markets remain thin, markets will be focusing on US Initial Jobless Claims for intraday direction. In other news. Russia fires over a 100 missiles from air & sea, Ukrainian officials saying cities across the country were targeted in several waves of strikes. ExxonMobil sues the EU over windfall tax. The US economy can still pull off ‘soft landing’, says White House adviser. Ongoing flight schedule disruptions at Southwest Airlines a ‘system failure’ within the company, US Secretary of Transportation Buttigieg says. Musk tells Tesla employees don’t be ‘bothered by stock market craziness’. In Currency markets. The US$ eases as risk sentiment improves as investors weigh the latest actions by China on reopening. CNY & Asian currencies firm 0.25% on average vs US$. Trading currencies are mixed with NZD & SEK are down 0.1%, NOK weakens 0.2%, AUD falls 0.35%, while MXN is up 0.2%, CHF firms 0.3%, AUD & ZAR strengthen 0.5% vs US$.

Oil prices weaken over 1% as surging covid cases across China dim hopes of a recovery in fuel demand. C$ firms slightly off its lows as it ignores weakening oil prices and finds support from a weakening US$. In thin holiday trading markets the loonie remains vulnerable to further weakness as oil & commodity prices remain under pressure. Support resets to 1.3530, while resistance rises to 1.3650.

EURCAD edges higher holding near 1-year highs as weaker commodity prices weigh on the C$. Support holds at 1.4440 while resistance remains at 1.4634 (Feb 4th highs).

Euro holds above 1.0600 ahead of US jobs data. Euro holds steady in thin holiday trading from a mild improvement in risk sentiment. Our bias is that Euro will remain capped over 1.0750 on the negative implications of China reopening with the prospect of spreading covid impacting the global economy. The EU are weighing the prospect of following the US and several Asian countries imposing restrictions on Chinese travelers. The escalation of the Ukraine/Russian war could also put addition pressure on the EU economy with increasing Ukrainian refugees. Support holds at 1.0560 while resistance holds at 1.0715.

GBPEUR continues to slip, down 2.4% in December and 5% for 2022 as domestic issues continue to keep the pound under pressure. Support holds at 1.1250 (.8888) while resistance remains at 1.1400 (.8772).

GBP steadies above 1.2000 amid renewed US$ selling. The pound struggles to gain traction in the midst of a weaker US$ and mildly improving risk sentiment. The China reopening story has dominated the market narrative initially improving risk sentiment which is pivoting as countries may look to restrict China opening by placing restrictions on Chinese travelers. We expect the pound to remain on the back-foot with its peers with impact from ongoing strikes, falling growth and the increasing prospect of a UK recession in 2023. Support holds at 1.2000, while resistance remains at 1.2130.