Thursday May 26th, 2022

The US$ is lower, oil prices edge higher, equity markets & US yields are mixed on the improving risk sentiment. The US$ retests monthly lows, stocks and US yields are mixed as markets weigh the Fed and China outlook. The FOMC less hawkish minutes indicated that the Fed’s aggressive moves will leave them with flexibility to shift gears later if needed. In China Premier Li said the situation appears worse in some ways than when China locked down in 2020: China’s economic indices are at record lows, national & local budgets have shrunk and recovery in May has barely materialized. Intraday focus will be on US Initial Jobless Claims, GDP & Pending Home Sales, CAD Retail Sales for direction today. In other news. The EU is working on a gas deal with Egypt & Israel to shore up supplies. The Russian central bank cuts rates for a 3rd time in just over a month to slow the RUB strength. Russian forces battle to surround Ukrainians in the east, shelling more than 40 towns in eastern Donbas region. UK Chancellor Sunak to unveil emergency aid over soaring household energy bills. DAVOS 2022, George Soros says Russia’s gas storage is almost full – and Europe should hold its nerve. Germany says Putin can’t be allowed to win the Ukraine war. The currency markets. The US$ retests 1-month lows after the Fed minutes contained few surprises. GBP nears 3-week highs as UK household support plan eyed. CNY holds near 1-week low on economic uncertainty and AUD & NZD struggle to make headway amid ongoing global risk. CNY falls 0.5%, while Asian currencies are up 0.1% on average vs US$. Trading currencies improve with AUD & NZD up 0.1%, CHF, NOK & MXN firm 0.2%, and JPY strengthens 0.5% while outlier ZAR weakens 0.2% vs US$.

Oil prices edge higher on increasing travel demand from North America, continuing tight supply and ongoing uncertainty on an EU ban on Russian supply. C$ holds steady near the stronger end of its two-week range vs US$ after the Fed minutes delivered no surprises. Alongside US data releases, markets will be focused on CAD Retails Sales (MoM-Mar) which are expected to rise to 1.4% vs 0.1% in Feb. US administration said it was requesting a 2nd dispute settlement panel under USMCA to review a trade dispute with Canada over dairy import quotas. Bias remains to sell US$ on rallies for a med-term target of 1.2350. Support holds at 1.2770, while resistance remains at 1.2870.

Euro holds above 1.07 as risk-on sentiment improves and the US$ eases after the FOMC minutes. Euro holds on to recent gains after steady signals from the ECB of a 50bp in rate hikes by September and comments that inflation expectations were ‘at the upper limit of being well-anchored’. Reports that the EU is working on a Gas deal with Egypt & Israel added support for the Euro. Intraday Euro direction will be driven by Key US GDP, Pending Home Sales and Initial Jobless Claims data releases. Support resets to 1.0650, while resistance rises 1.0750.

EURGBP edges higher after falling aggressively on Wednesday, as the prospect of an alternative Gas supply and a rate hike in July boosted Euro. Support holds at .8470 (1.1806) while resistance remains at .8600 (1.1628).

GBP continues to edge higher as risk sentiment improves and the US$ weakens after unsurprising FOMC minutes. The pound edges higher as markets wait for the UK Chancellor to lay out his financial support plan for UK households and a flurry of key US data releases. Political uncertainty from the ‘party-gate’ report appears to have been sidelined despite two conservative lawmakers pulling their support from PM Johnson. Intraday US data releases and the UK financial support plan will provide the pound direction today. Support resets to 1.2545, while resistance rises to 1.2650.