Thursday February 3rd, 2022

The US$ rebounds, oil prices weaker, equity markets are down while US yields are mixed ahead of US data and ECB rate decision. The US$ index broke its 4-day losing streak ahead of US Initial Jobless Claims and ISM Services PMI despite both numbers expected to weaken month-over-month. The ECB is expected to keep interest rates on hold, while expected to acknowledge rising inflation, with investors looking for possible signals of a rate hike in 2022. In the UK the BoE raises rates for a 2nd time to 0.5% and begins unwinding its Quantitative Easing. In other news. Meta (Facebook owner) share price fell 20% ($180 billion) in US premarket trade on Thursday after the social media company issued a weak forecast. UK energy prices are expected to jump 54% as the cost-of-living crisis deepens. US troop levels increase in Germany, Poland & Romania, while Russia and Belarus are expected to have 30k troops in joint military exercises. Covid. As UK covid rules ease the number of people dining out jumped with data showing spending on Debit & Credit cards significantly increased. Britain approves Novavax covid vaccine for adults. In China 11 people at the winter Olympics are in hospital with covid. In currency markets. Petro currencies NOK, CAD & RUB weaken on weaker oil prices, while the GBP firms on the BoE rate hike. CNY edges higher again up 0.1% while Asian currencies dip 0.1% on average vs US$. Trading currencies are mixed with MXN & ZAR lower 0.2%, NOK, JPY & AUD down 0.3%, and CHF weaker 0.4%, while outlier NZD is up 0.1% vs US$.

Oil slip 1 ½% on OPEC sticking to its target of 400kbpd monthly increases, weaker US data and on profit taking with oil prices near 7-year highs. Ongoing tight supply issues and geopolitical tensions will likely keep oil prices supported on dips in the near term. C$ weakens from its 6-day high (1.2648) on Wednesday as oil prices weaken and the US$ index stages a rebound. Bias remains to sell US$ on rallies towards mid-1.27 levels as oil prices remain high and with BoC reiterating higher rates likely in March. Support holds at 1.2647, if breached we could see 1.2557 next, while resistance remains at 1.2740.

Euro slips below 1.13 approaching the ECB rate decision and monetary statement. The ECB is expected to keep rates on hold, but investors will be focused on the monetary statement to see the level of acknowledgement of rising inflation rates and signals of a possible hike in 2022. Our bias remains bearish Eur vs US$, C$ and GBP on interest policies divergence and will likely keep the Euro under sustain pressure in 2022. Support holds 1.1240 while resistance remains at 1.1335.

EURGBP dropped quickly after the BoE raised rates for a 2nd time while the ECB is keeps rates on hold, adding selling pressure to Euro. Support holds .8280 (1.2077 – 18 Feb 20 low), while resistance remains at .8400 (1.1905)

GBP strengthens after the BoE hikes interest rates 0.25%, its 2nd hike in a row and begins to unwind its QE policy to contain spiraling inflation levels. UK interest rates now sit at 0.5%, but importantly almost half of the policy makers wanted a bigger increase than the 0.25%. The BoE said consumer price inflation which stands at 5.4% in December, now looks set to peak at 7.25% by April. Support resets to 1.3535, while Resistance lifts to 1.3661 with the potential of extending to 1.3748.