Tuesday December 20th, 2022

The US$ weakens, oil prices firm, equity markets are down, while US yields rise on BoJ action. The Bank of Japan stuns markets with its yield control policy change which allows long-term interest rates to rise more, the move is aimed at easing some of the costs of prolonged monetary stimulus. The JPY surged over 3% vs US$, EUR, and GBP, equities hit 3-week lows, while Japan’s 10-year yield rose to its highest level since 2015. Deutsche Bank analysts said, noting the BOJ move had come as markets were “already reeling” from ECB & Fed’s hawkishness last week. Today focus will be on US Building Permits, Housing Starts, CAD Retail Sales & EUR Consumer Confidence to provide intraday direction to markets. In other news. The World bank cuts China growth outlook on covid and property woes. The UK nurses walk out again, while Ambulance workers are set to strike on Wednesday. China races to bolster its health system as covid surge sparks global concern. US poised to become a net exporter of crude in 2023. US Congress to advance $1.7 trillion govt funding bill which includes record military spending, before temporary funding funds out at the weeks end. Denmark’s housing market in steepest decline since 2001. In Currency markets. The Bank of Japan’s hawkish stance on rates saw JPY rallying to a 4-month high and triggering weakness in the US$ index. CNY holds steady as interest rates remain unchanged. CNY & Asian currencies firm 0.2% on average vs US$. Trading currencies are mixed with AUD, SEK, ZAR, MXN & NZD down 0.2%, while CHF firms 0.25%, NOK strengthens 0.5% and JPY rallies 3.2% vs US$.

Oil prices edge higher on the combination of a weakening US$ and a US plan to restock its petroleum reserves, but gains were capped by uncertainty over the impact of rising covid cases in China. C$ firms in early trading on strengthening oil prices, but as covid levels continue to surge C$ strength may be short lived. Intraday focus is on CAD Retail Sales which expected to improve to -0.3% (-0.8% previously) while ex-autos to 0.8% (-0.7% Sept). Expect C$ to remain vulnerable to volatility in thinning holiday markets. Support lowers to 1.3570 while resistance resets to 1.3700.

EURCAD holds steady below its 8-month highs ahead of CAD Retail Sales & EUR Consumer Confidence. Support holds at 1.4440 while resistance remains at 1.4634 (Feb 4th highs).

Euro continues to straddle 1.0600 amid BOJ rattling risk sentiment. The BOJ joined the ECB in adopting a hawkish stance on interest rates heading into 2023. Today saw German PPI drop below expectations hitting -3.9% vs expectations of -2.6%. Investors are now sidelined for EUR Consumer Confidence (DEC) for direction. Support holds at 1.0560 while resistance holds at 1.0715.

GBPEUR weakens intraday and looks set to end the month down 1.5% as the ECB maintains a hawkish tone. Support holds at 1.1420 (.8756) while resistance remains at 1.1600 (.8620).

GBP remains volatile in thinning holiday trading. The pound weakened from Tuesday’s high 1.2200 to 1.2050 and rebounds towards 1.2150 despite increasing risk aversion. Increasing strike action impacting national travel and health care continues to overshadow the pound’s ability to strengthen. UK PM warns that the NHS strikes could go on for months as he rules out reopening pay offers. Our bias is that any short-term GBP strength will be capped as the UK enters recession, and the BoE adopts a dovish tone heading in to 2023. Support resets to 1.20250, while resistance remains at 1.2220.