Tuesday February 8th, 2022

The US$ firms, oil prices weaken, equity markets and US yields are up while markets remain range bound ahead of Thursday’s US CPI report. The benchmark 10-year US Treasury bond yield extends gains towards the key 2% mark helping the US$ index strengthen vs a basket of major currencies. We expect the US$ to continue to firm as traders are wary that Thursday’s US inflation data could increase expectations for faster US interest rate hikes. In other news. France says Putin is moving towards de-escalating Ukraine crisis (FT). The US pledges to ‘bring to an end’ to Nord Stream 2 if Russia invades the Ukraine. Covid. Hong Kong increase its covid curbs after covid cases hit record highs. Canada continues to crack down on the 11-day truckers protests against covid measures. A quarter of UK employers cite long covid as the main cause of long-term sickness absences. In currency markets. Euro eases after ECB Lagarde comments on no need for tightening, Russian Rub nears a 4-week high after Putin/Macron talks & CNY weakens vs US$. CNY down 0.1%, while other Asian currencies are flat on average vs US$. Trading currencies are mixed with JPY & AUD down 0.1%, MXN weakens 0.3%, NOK falls 0.55% while NZD is flat, CHF up 0.1% and ZAR rallies 0.4% vs US$.

Oil prices continue to consolidate after the WTI tested 7-year highs at US$93.13 on Friday as talks with Iran over the 2015 Iran nuclear deal makes progress. C$ volatility continues with C$ weakening in early Tuesday trading after having its strongest rally in two-months up 0.9% on Monday as oil prices and US yields continue to drive the loonie direction. Intraday US goods & services trade balance & CAD International Merchandise Trade will help provide direction to markets today. Bias remains to sell US$ on rallies with 1.2800 expected to continue to cap C$ weakness. Support holds at 1.2647, while resistance remains at 1.2740.

Euro holds 1.14 vs US$ but remains vulnerable to further weakness. Euro eased on a stronger US$ and comments from ECB President saying there were no signs of inflation measurably exceeding the 2% target in the medium term. President Lagarde’s comments dulled last week’s hawkish comments, saying the ECB will not hike the policy rate before ending the net asset purchases.  Bias for Euro to remain under pressure into March’s expected FED & BoC rate hikes. Support resets to 1.1365 while resistance lowers to 1.1450.

EURGBP slips for a 2nd day after the EBC’s President suggestion that EU rates will not rise in 2022. Support holds at .8400 (1.1905) while resistance remains at .8500 (1.1765)

GBP edges higher in quiet markets. The pound remains supported after the BoE raised rates last week, with traders focused on comments that 4 of 9 of the Monetary Policy Committee who wanted a 50 bases point move vs the 0.25 basis point delivered. Markets are now pricing in another 125 basis points of hikes over the remainder of 2022. Markets will remain focused on Brexit talks and US CPI both on Thursday for direction. Support holds at 1.3485, while Resistance remains at 1.3560.