Thursday July 7th, 2022

The US$ slips, oil prices firm, equity markets and US yields strengthen as risk sentiment shifts. The Federal Reserve minutes on Wednesday showed the policymakers’ resolve to continue hiking, while the fall in oil prices and a weaker US$ have calmed investors over the pace of tightening needed. Oil prices dropped nearly 10% to test 12-week lows this week as investors weighed a potential global slowdown against signs of still-tight physical markets. Today sees a busy economic docket head of Fridays key NFP report, with the ECB Monetary Policy Meeting, US Jobless claims, Goods & Services trade balance, in CAD Ivey PMI data & International Merchandise trade which will help provide intraday direction. In other news. UK PM Johnson to resign today after days of chaos and resignations. FOMC Wednesday warned entrenched inflation poses ‘significant risk’. UK & US security chiefs warn of ‘immense’ threat from China. Australia expands fourth covid dose rollout amid fresh Omicron threat, while Macau shuts shopping mall in a race to contain outbreaks. China unveils plans to spur car demand, may extend EV tax break. The currency markets. Currencies rebound as US$ index slips, Euro off 20-year lows, and commodity currencies strengthen. India INR gains as rules ease to boost foreign inflows. CNY firms 0.1%, while Asian currencies are flat on average vs US$. Trading currencies mostly rebound with CHF dips 0.1%, while JPY flat, ZAR, MXN & NOK firm 0.5%, NZD strengthens 0.6% and AUD rallies 1% vs US$.

Oil prices rebounds off 12-week lows in early trading while recession fears & rising covid cases impacted demand oil prices continue to balance against ongoing short-term supply disruptions. C$ extends gains after testing of 20-month lows ahead of the FOMC minutes. C$ found strength in a weakening US$, rising Cad yields in anticipation of a BoC rate hike and the easing of short-term inflation fears as oil prices fell. Intraday economic releases may have short term impact on direction, but markets will be focused on Fridays key US NFP report and Canada’s Unemployment data. Support resets to 1.2920 resistance lowers to 1.3020.

Euro struggles to hold above 1.0200 as risk flows return. Euro consolidates around the 1.0200 and focuses on the ECB Monetary Policy Meeting Accounts for June today. According to Reuters, the ECB is expected to hike its policy rate by a total of 135bps by the end of 2022, compared with expectations of 190bps in mid-June. Investors will be reassessing the ECB’s rate stance as the energy crises within the EU is expected to see the Eurozone economy tip into recession. Support holds at 1.0160 while resistance remains at 1.0250.

EURGBP weakness continues as Eurozone recession fears grow as energy issues continue to grow. GBP rebounded strongly, but political uncertainty is expected to add pressure to the pound. Support resets to .8475 (1.1800) while resistance lowers to .8620 (1.1600).

GBP recovers to 1.2000 ahead of the UK PM statement to the country today. The pound rebounds from 1.1876 as the risk sentiment shifts and puts pressure on the US$. PM Johnson is expected to announce his resignation but will remain in the job until a new leader for the conservative party is selected by the end of summer. Our bias remains bearish on the pound due to rising energy costs, increased political uncertainty, Northern-Ireland Protocol/Brexit woes, alongside the expected UK recession. Intraday UK PM Statement, US data releases ahead of Friday’s key NFP will give GBP direction. Support resets to 1.1930 while resistance lowers to 1.2050.