Thursday June 9th, 2022

The US$ is flat, oil prices are steady, equity markets are down while US yields are mixed ahead of the ECB monetary statement. The EBC is expected to keep interest rates on hold, end its bond purchases and hike once in July and again in September, lifting the deposit rate from -0.5% to zero. Investors will be focused on ECB monetary statement for signs of an increasing hawkish tone, which will be bullish for Euro. Intraday alongside the ECB monetary statement markets will also focus on US initial jobless claims and then Fridays key US inflation report. In other news. Chinese exports surged to double-digits in May on easing covid curbs, but trade outlook remains fragile. Ukraine, ‘Brutal’ battle for Sievierodonetsk will determine the fate of Donbas, President Zelensky says. Fertilizer costs could prolong global food tensions – FAO. Parts of Shanghai return to lockdown, Beijing district shuts entertainment venues. India reports highest covid daily cases since March 2nd. The currency markets. CNY recovers from weekly lows on strong China export data. INR hits record low amid sustained rise in global crude costs. JPY retested 20-year lows vs US$, down 17.75% since December. G7 currencies hold steady ahead of the ECB rate decision and Fridays key US inflation number. CNY firms 0.4%, while Asian currencies are up 0.15% on average vs US$. Trading currencies are mixed AUD down 0.1%, NOK falls 0.2%, while MXN, CHF & NZD are up 0.1%, ZAR firms 0.25% and JPY strengthens 0.7% vs US$.

Oil prices hold near 3-month highs as investors focus on anticipated summer driving demand and are somewhat ignoring Shanghai imposing new lockdown measures in parts of the city. C$ holds steady near 2-month highs as oil prices hold above US$123pb and CAD 10-year yields tests 11-year highs. C$ appears to be consolidating ahead of Fridays key US inflation report and CAD employment data which is used as a guide for the BoC. Our bias is to sell US$ on any pull backs towards 1.2600 and look for a test of April 21st lows (1.2456) this month. Support holds at 1.2528, if breached look for 1.2456 next (21April) and resistance remains 1.2640.

Euro holds above 1.0700 ahead of the ECB monetary statement. President Lagarde signaled in a blog post last month that the central bank will end its bond purchases in June, then raise rates in July & September. Markets are focused on ECB President Lagarde’s comments as economists are increasingly predicting a rise from 0.25bps to 0.50bps hike in July, and this would provide a boost to Euro strength. Our Bias is that we may see a spike in Euro strength on a hawkish ECB statement, but single currency will be capped below 1.08 as investors shift their focus to the US inflation report on Friday. Support holds at 1.0640, while resistance remains at 1.0765.

EURGBP hold steady heading into the ECB rate decision and monetary statement. Technically the currency pair remains in a positive up-channel and market sentiment favours a stronger EUR heading into the summer. Support holds at .8470 (1.1806) while resistance remains at .8600 (1.1628).

GBP holds above 1.2500 despite political & economic headwinds. Wednesday’s OECD report predicted that the UK’s economy will stagnate, be the weakest performing economy of the OECD members and predicts no GDP expansion at all over 2023. The OECD recommends that the UK cut taxes or raise its spending to help revitalize its economy. Politically the PM attempts to reset his leadership after surviving a vote of no-confidence on Monday. GBP remains vulnerable if we see a hawkish ECB statement today, we could see further GBP weakness as investors shift back to Euro. Support lowers to 1.2470, while resistance holds at 1.2560.