Thursday May 12th, 2022

The US$ rallies, oil prices slip, equity markets and US yields are down as surging inflation dampens risk sentiment. The US$ index rallies to a fresh 20-year high, while equity markets tumble after the higher-than-expect US inflation report on Wednesday bolstered the case for more aggressive monetary tightening by the Federal Reserve. Intraday focus shifts to US initial jobless claims, US PPI and BoC’s Gravelle speech for direction. In other news. The UK economy ‘only going to get worse’ as growth slowdown begins (CNBC). Finland’s president & PM back NATO membership, the application urged without delay. Italian PM Draghi floats Buyers’ OPEC idea with the US as oil prices remain high. European gas prices surge on Russian supply concerns (FT). In Ukraine, Russia is accused of industrial-scale farm plunder with Grain seizures and destruction of tools & buildings. The currency markets. US$ US$ US$ – the US$ index retests fresh 20-year highs after the US CPI printed 8.3% prompting rattled investors to flee to the US$. In May to date – AUD down 2.7%, EUR down 1%, GBP down 3%, NOK down 5.3%, CAD down 1.4% vs US$. Today CNY is down 0.88%, while Asian currencies are down 0.5% on average vs US$. Trading currencies are mixed with JPY up 1%, while CHF is down 0.1%, MXN falls 0.7%, AUD, ZAR & NZD weaken 0.9% and NOK tumbles 1.2% vs US$.

Oil prices slip over 1% as recession fears may hit demand, outweighing supply concerns and geopolitical concerns in Europe. C$ slips back to 18-month lows as investors buy US$’s as nervousness continues to grow over the global economic outlook. The Loonie continues to outperform its commodity peers as strong oil prices and a hawkish BoC provides investors some solace. Intraday alongside the US data release, markets will look to BOC Deputy Governor Gravelle speech on commodities, growth and inflation which may offer clues on the outlook for CAD interest rates for the rest of 2022. Support holds at 1.2892, while resistance remains at 1.3090 (Nov/20).

Euro tumbles through 1.05, testing a fresh 6-year low vs US$. The flight to the safe-haven US$ after the US CPI report on Wednesday increased the view of divergence between the ECB-FED interest rate policy. Euro tumbled through 1.05, testing a fresh 6-year low of 1.0423, while the Euro Stoxx 600 drops more than 2% today, down 14.7% year to date. The US$ remains in the driver’s seat with many analysts expecting to see parity between the EUR/US$ in 2022. Intraday US PPI & US Jobless claims will provide direction today. Support lowers to 1.0385, while resistance resets to 1.0500.

EURGBP falls as investors exit the single currency on expectations of widening interest rate divergence and increasing geopolitical conditions across the EU. Support holds .8485 (1.1785) while resistance remains .8600 (1.1628).

GBP breached 1.22 vs US$ on disappointing UK GDP report. The UK economy shrinks 0.1% in March but expanded by just 0.8% in Q1/22, with economists expecting further growth contractions this year. At the same time growth is slowing UK employers are turning to bonuses to avoid inflationary pay deals as levels of discretionary awards hits 9-year highs amid labor shortages. The pound fell to a fresh 2-year low verses the US$ on a combination of domestic growth & political concerns and a push to the safe-haven US$ in the face of soaring global inflation levels. YTD the pound is down 9.75% vs US$. Support resets to 1.2160 while Resistance lowers to 1.2285.