Tuesday January 17th, 2023

The US$ firms, oil prices steady, equity markets are down, while US yields rise on weak China growth. China’s economic growth in 2022 tumbled to its weakest level in a half-century as covid restrictions and a property slump significantly impacted growth. The US$ extended gains, while equity markets fell amid disappointing Chinese growth, and signs central banks will turn more hawkish as inflation levels remain high. Today focus will be on earning reports from Wall Street banks, the Davos 2023 Summit, CAD inflation report, and US NY Empire State Manufacturing Index for intraday direction. In other news. IMF chief says growth will bottom out in 2023 and bounce back in 2024. China’s population growth falls for the first time in 60 years sounding the alarm on demographic crisis. UK train drivers to strike again in February after rejecting pay offer. Tanks for Ukraine in sight after Germany says new minister to decide. In Currency markets. CNY weakens from 6-month highs on weak GDP data. JPY holds near 7-month highs ahead of BoJ rate decision. GBP strengthens after data shows wage growth. ZAR remains under pressure from ongoing electrical outages. CNY weakens 0.7%, while Asian currencies are down 0.3% on average vs US$. Trading currencies are mixed with ZAR tumbles 0.8%, JPY, SEK, NOK, MXN & AUD down 0.25%, while NZD is flat, CHF strengthens 0.55% vs US$.

Oil prices are steady after China posted its second weakest annual economic growth in nearly 50-years, though its easing of covid restrictions underpinned hopes in fuel demand in 2023. C$ eases in early trading as markets focus on today’s Canadian inflation report. Canadian inflation is expected to ease to 6.3% y/y Dec vs 6.8%; if inflation continues to decline the BoC is expected to ease its hawkish tone. Intraday Cad CPI will be the primary short-term driver for the loonie. Support resets to 1.3375 while resistance rises to 1.3485.

EURCAD edges higher as C$ is sidelined ahead of today’s inflation report. Support resets at 1.4450 while resistance rises to 1.4560.

Euro holds steady above 1.0800 after upbeat German economic sentiment. Upbeat German & Euro-zone ZEW economic sentiment data helped the Euro hold steady vs a firmer US$. ECB economist Lane said interest rates will have to move into restrictive territory to bring inflation back to target. Focus will be on ECB president Lagarde who will be on a panel in Davos on Thursday. Upbeat economic sentiment and a hawkish ECB should help provide support for the Euro short-term. Support holds at 1.0780 while resistance remains at 1.0900

GBPEUR strengthens in early trading after UK pay data highlights ongoing inflation concerns. Support holds at 1.1250 (.8888) while resistance remains at 1.1400 (.8772).

GBP retests 1.2200 as focus remains on UK inflation and the prospect of further BoE rate hikes. The UK pay growth speeds up again with the average weekly earnings up 6.4%, raising concerns for the BoE about inflation and increasing the prospect of further interest rate hikes. Rail workers announce further strike action in February after rejecting pay offers. We expect the pound to be capped on rallies as ongoing strikes will continue to negatively impact sustainable UK growth. Support holds at 1.2180 while resistance remains at 1.2260.