Thursday June 23rd, 2022

The US$ firms, oil prices slip, while equity markets and US yields are down as recession fears grow. Fed Chair Powell warned US recession ‘certainly a possibility’, saying the economy is resilient but factors beyond his control raise risk of inflation surprises. Chairman Powell accepted that steep rate increases could trigger a recession and engineering a soft economic landing is ‘very challenging’. Oil prices & equity markets extend their losses, while the US$ index strengthened vs a basket of major currencies as risk aversion drive markets. Intraday, the Fed Chair will testify today before the House of Financial Services Committee, US Jobs data, US PMI and US Bank Stress Test info will provide direction to markets today. In other news. Germany raises level of alarm over Russian gas disruptions. Ukraine takes tentative step towards EU membership as the Donbas battles reach ‘fearsome climax’ (Reuters). Railway strikes cripple Britain; unions warn of more to come. Chinese President Xi reaffirms growth targets that analysts say is out of reach. The currency markets. Euro is under pressure after weak German & French PMI data confirmed the Eurozone economy is struggling to gain traction. Russian RUB hits a 7-year highs, Thailand THB hits 7-year lows, the Philippine PHP steadies near 17-year lows, while S.Korea KRW breaks below 1,300 for the first time in 13-years and the US$ Index holds near 20-year highs. CNY dips 0.1%, while Asian currencies are down 0.25% on average vs US$. Trading currencies are mixed with NZD & MXN down 0.25%, CHF weakens 0.5%, while AUD, ZAR & NOK fall 0.65%, and outlier JPY rallies 0.7% vs US$.

Oil prices slip as surging inflation and increasing recession fears puts pressure on oil prices on anticipation demand could fall under the current high-cost environment. C$ holds below 1.3000 level as it balances a rallying US$ on safe-haven buying vs expectations of higher Canadian interest rates after the 4-decade high inflation report. Intraday Chairman Powell’s testimony will be the primary market driver. Oil prices have fallen 15% over the last 6-weeks, as recession fears grow C$ has the potential of retesting 1.3100 in a stronger US$ – weakening oil markets. Support holds at 1.2930 resistance remains at 1.3025.

Euro under fresh selling pressure after disappointing PMI data. The Eurozone, French & German PMI data all came in below expectations highlighting the pressures the EU countries are facing from the impact of Ukraine war, Russian sanctions, and surging inflation levels. The prospect of Euro interest rates will return to positive by September is providing some underlying support to the single currency, but the prospect of a parity vs US$ in Q3 remains high. Intraday US data and Fed Chair Powell’s comments will be the primary driver for currency markets today. Support holds 1.0470, while remains at 1.0575.

EURGBP holds yesterday’s gains, remaining in the technical up-channel from mid-April as investors favour Euro heading into an expected ¾% rate increases by the ECB by September. Support holds at .8530 (1.1723) while resistance resets to .8630 (1.1587).

GBP clings on to 1.2200 after mixed UK PMI data. Today’s data showed that the UK services PMI stayed unchanged in early June, but manufacturing PMI weakened as the economy slows. Analysts commented that the UK economy is starting to look like it is running on empty, saying business growth is being supported by orders placed in prior months as companies report a near-stalling of demand. The pound remains vulnerable towards 1.2000 as the UK continues to face slowing growth, rail strikes, political uncertainty, and ongoing Brexit issues. Support resets to 1.2150, while resistance lowers to 1.2250.