Thursday November 3rd, 2022

The US$ rallies, oil prices weaken, equity markets are down, while US yields rise after Fed warning. Currency & equity markets retreated as risk-off sentiment returned after the Jerome Powell said the Fed would raise interest rates more than previously expected, declaring that “ongoing increases in the target range will be appropriate”. The Fed raised rates 75bps, bringing the top of its target range to 4%, the highest level since 2008. Today, the focus will be on the Bank of England’s rate decision. Economists expect the BoE to hike rates to 3% from 2.25%, its biggest rate rise since 1988 as it battles inflation rates at 10.1%. On the North American economic docket today, Key ISM Services PMI, US Goods & Services Trade balance, Initial Jobless Claims, Factory Orders, CAD Exports, Imports, Building Permits. In other news. US 2-year yield hits highest level since 2007 as Fed flags more hikes head. Russia’s economic decline deepens: Putin warns Moscow could pull out of grain deal again (CNBC). Ukrainian officials say nuclear plant disconnected from grid as shelling damaged power lines. Turkish inflation rises above 85% in October. In Brazil, Bolsonaro backers call on Brazil military to intervene after Lula victory. UK house prices could fall 30% warns CFO at Nationwide Building Society. In Currency markets. The US$ Index rallies as the Fed signals more rate hikes. GBP slumps despite expectations of aggressive BoE rate hikes. CNY hovers near 15-year lows after the Fed decision. CNY & Asian currencies are down 0.35% on average vs US$. Trading currencies are under pressure with JPY down 0.2%, ZAR weakens 0.75%, AUD, SEK, CHF & NZD slump 1%, and NOK tumbles 1.5% vs US$.

Oil prices slip 1% as US interest rates hike rallied the US$ and increased fears of a global recession which could impact fuel demand, but losses appear limited by ongoing concerns over tight supply. C$ extends its sell off vs US$ but outperforms its G10 peers after risk-off sentiment returns on the back of the Fed chairs comments that rates will continue to rise. Focus will be on US Services PMI ahead of Fridays key US Jobs data which will be monitored their inflationary impact. Support resets to 1.3680 while resistance rises to 1.3825.

EURCAD continues to slide as C$ finds a base on steady oil prices and the prospect of widening interest rates. Support sits at 1.3400 while resistance holds steady at 1.3600.

Euro tumbles through .9750 amid growing risk-off sentiment. Euro has continued under selling pressure after the Fed Chair commented that US rates will rise further than initially anticipated as inflation issues persist. ECB President Lagarde noted that they must be attentive to spill-over from the Fed policy, her comments didn’t provide any investor confidence. Focus will be on US data releases today, but in the short term we expect Euro to remain under selling pressure. Support resets to .9685 while resistance lowers to .9800.

GBPEUR remains on the back-foot as markets remain cautious of the pound ahead of the UK PM’s spending plan next week. Support lowers to 1.1500 (.8695) while resistance lowers to 1.1650 (.8583).

GBP tumbles despite expectations of the largest BoE hike since 1988. The BoE is widely expected to hike its policy rate by 75bps, but Governor Bailey’s comments on the could look will drive the pounds direction. If the BoE only hikes 50bps, we expect the pound to come under aggressive selling pressure. Today BoE comments & US data will impact the pound but overall, we remain bearish on the GBP into the year end. Support resets to 1.1200, while resistance lowers to 1.1350.