Thursday February 10th, 2022

The US$ is flat, oil prices firm, while equity markets and US yields are mixed heading into the US inflation report. The US inflation rate is expected to have accelerated at its fastest rate in 40 years with economists forecasting a 7.3% annual rise in CPI for January. A strong inflation number increases expectations of the Fed increasing rates by 50bps in March and will strengthen the US$. In other news. President Biden to propose a 4.6% for federal employees, their biggest raise in 15 years. Russia starts major military drills in Belarus increasing Ukraine tensions. China’s Evergrande, the world’s most indebted developer rules out asset fire sale. UK PM Johnson says the next few days ‘most dangerous moment’ in Ukraine crisis. Covid. COVAX cuts N.Korea’s covid vaccine allotment after no deliveries were accepted. AstraZeneca sees higher 2022 sales but warns covid revenues set to decline. Hong Kong infections rise 10-fold as experts warn cases could near 30,000 a day by the end of March. In currency markets. Currency markets remain range bound waiting for the release of the US CPI report. CNY firms 0.1%, while Asian currencies are flat on average vs US$. Trading currencies are mixed as NOK drips 0.2%, JPY down 0.3% while CHF is flat, MXN firms 0.15%, AUD & NZD are up 0.25% and ZAR rallies 0.7%

Oil prices rise on falling US stockpiles and continuing loosening of covid restrictions, but the ongoing Iranian nuclear talks will likely keep oils prices capped in the short term. C$ sits at the stronger side of its current range but continues to struggle to break through the key 1.2650 level. Meanwhile concern is rising over the protesters blocking two border crossings between Canada/US and the potential damage to the Canadian economy. Intraday the US CPI report will be the primary driver for currency markets. Support holds at 1.2647, if breached look for test of 1.2557 next, while resistance remains at 1.2740.

Euro remains contained within 1.14-1.1450 range ahead of US CPI report. Euro has been sidelined this week waiting for the US CPI report for a signal on the speed/size of Feds rate decision. ECB policymakers continue to contrast the Fed speakers with EU forecasts suggesting softer inflation and GDP growth. US CPI will be the short-term pivot for the US$, a weak CPI could put the US$ under pressure and see a retest of recent Euro highs to 1.1500. Support holds at 1.1365 while resistance remains 1.1450.

EURGBP weakens after ECB forecast softer EU inflation and GDP growth, reducing the prospect of an ECB hike in 2022. Support holds at .8400 (1.1905) while resistance remains at .8500 (1.1765)

GBP holds near intraday highs ahead of the US inflation report. BoE Pill cites uncertainty on rate hikes beyond a couple of months as the UK copes with recovering from covid restrictions. The EU files its first post-Brexit court case against the UK for breaching withdrawal agreement. The pound continues to hold above 1.3550 ahead of the Key US inflation report which will be the primary driver for currency markets today. Support holds at 1.3485, while Resistance remains at 1.3600.