Thursday January 6th, 2022

The US$ is flat, oil extends gains, equity markets are down and US yields firm as markets digests the hawkish Fed minutes. The US$ resumed its rally testing near 14-month highs after Wednesday’s hawkish Fed minutes fueled expectations of a US rate hike as early as March. The US$ consolidated in early trading as market focus on todays’s economic releases including US services PMI, US Factory Orders & Initial Jobless claims. Expect the US$ to continue to find intraday support from the Feds comments as market risk sentiment eases. In other news. The EU’s top diplomat visits east Ukraine front to show support against Moscow. German Industrial orders bounce back on strong foreign demand. European shares drop as sell-off in tech stocks gather pace after the Fed minutes warned it may raise interest rates sooner than anticipated. Covid. Australia suffers record covid cases, straining businesses and supply chains. The French parliament approves President Macron’s vaccine pass. Canada’s PM Trudeau says Canadians angered at anti-vaxers, he also promised more than 100 million rapid tests to be distributed quickly. In currency markets. JPY at its weakest in 50 years in real terms (JP Morgan). RUB near 9-month lows pressured by the Kazakhstan unrest, while Risk-Sensitive currencies GBP, AUD & CAD eased on the Fed minutes. CNY dips 0.2%, THB tumbles 1%, while other Asian currencies are down 0.3% on average vs US$. Trading currencies saw AUD & ZAR fall 0.75%, NZD weakens 0.45% and NOK & CHF are down 0.15%, while JPY & MXN firm 0.2% vs US$.

Oil prices extend gains seeing Brent crude testing US$ 82pb on Kazakhstan unrest, the ongoing Libyan outages, and signs that demand is withstanding the Omicron variant. C$ volatility continues as the loonie weakened as the Fed comments dented investor sentiment. Intraday Oil prices, US economic releases and CAD International Merchandise Trade will help provide intraday direction. Bias remains positive on the CAD outlook given the prospect of BOC tightening and firm oil prices, but C$ may remain on the back-foot as the market absorbs the Fed comments. Support at 1.2685 and resistance resets to 1.2795.

Euro continues to pivot at 1.13 as markets stall ahead of the US data. Euro managed a modest rebound from the 1.1280 lows on positive German factory orders and stronger than expected EU PPI results. Intraday US data and German CPI will provide intraday direction. Bias remains that the Euro will remain capped after the Fed comments highlights the divergence between the ECB and the Fed on their interest rate policies in 2022. Support lowers to 1.1250 and resistance holds at 1.1350.

EURGBP holds near its lowest levels since Feb 2020 but remains vulnerable to further weakness as BoE/ECB interest rate policy diverge and limited UK covid restrictions continues to support the pound. Support lowers to .8340 (1.1990) while resistance resets at .8450 (1.1843)

GBP pares early losses vs US$ & EURO holding near 1.3550 & .8350. The pounds remain volatile trading between 1.36 to 1.3490 over the last 12 hours after the Fed comments soured market risk sentiment. Domestically the UK reported record covid prevalence for the last week in 2021 with 1 in 15 people in the UK infected, with the PM saying cases are increasing at their fastest rate ever. Support holds 1.3460 and resistance resets to 1.3560 with 1.3600 remaining the key psychological level.