Tuesday January 11th, 2022

The US$ dips oil prices firm, equity markets are mixed and US yields lower ahead of the Fed Chairs speech. The US$ weakens ahead of the Fed Chair speech to the Senate confirmation hearing, where he will tell congress that the bank will “prevent higher inflation from becoming entrenched” in pre-released comments. Investors will look clues to timing of monetary tightening when he answers questions from the Senate Banking Committee as he seeks a second term. US treasury yields eased from their 2-year highs ahead of the Wednesday’s US inflation report, capping the US$ strength vs a basket of major currencies. In other news. The US & Russia agreed to extend talks in Geneva over the Ukraine crisis. Vice-Fed Clarida to resign Jan 14th following scrutiny over his stock fund trades in Feb 2020. Fed’s Bostic says three hikes, fast balance sheet runoff needed to fight inflation. Covid. The WHO warns 50% of Europe’s population could contract Omicron in the next two months. Pfizer CEO says two covid vaccine doses aren’t ‘enough for omicron’. The US reports 1.35 million covid cases on Monday setting a new global record. South Africa studies suggest Omicron has higher ‘asymptomatic carriage’. In currency markets. Japanese yen at risk of further weakness vs US$ in 2022 say analysts. GBP tests a 10-week high, CAD & NOK firm on stronger oil prices and EUR/GBP holds near 2-year lows. CNY is flat, while Asian currencies are up 0.1% on average vs US$. Trading currencies are mixed with JPY & CHF down 0.15%, while MXN is flat, AUD & NZD are up 0.1% and NOK & ZAR are rallies 0.35%.

Oil prices rallies +1% with Brent Crude over US$82pb as demand recovery is seen on track supported by tight supply and optimism that rising covid cases will not derail the global recovery. C$ rebounds from Monday’s 1.2697 lows as Cad 10-year yields hit 6-week highs and oil prices rally. Intraday markets will likely hold steady through the Fed chairs speech with markets shifting their focus to the Key US CPI report on Wednesday. Our bias remains to sell US$ on any rallies as we expect C$ to continue to extend gains in Q1/22. Support resets to 1.2600 and resistance lowering to 1.2695.

Euro holds within its 1.1300-1.1350 range ahead of ECB Lagarde & Fed Powell speeches. Euro firms slightly benefiting from easing US yields which capped the US$ in early trading. Markets will be focused on ECB Lagarde’s speech after ECB Nagel commented that the current EU inflation surge is not entirely due to temporary factors. Our bias remains that the single currency will remain capped as investors will continue to favour higher yielding currencies in 2022. Support remains at 1.1250 and resistance holds at 1.1360.

EURGBP holds near 2-year lows on speculation of further BoE rate hikes. Support resets to .8280 (1.2077) while resistance resets at .8400 (1.1905)

GBP edges through 1.3600 testing 2-month highs at 1.3619. Investors continue to ignore Brexit woes, surging covid cases, political uncertainty and remains focused on the prospect of further BoE rate hikes. Brexit deadlock will be in focus when the EU & UK sit down and attempt to secure a deal over the North Ireland protocol this week. UK PM is under-fire again after it emerged his private secretary hosted a private party at downing street during lockdown. Expect GBP to remain firm vs EUR, but could be capped vs US$ in to Q1/22, Support resets at 1.3550 while resistance rises to 1.3645.