Tuesday January 24th, 2023

The US$ & oil prices are steady, equity markets are mixed, while US yields ease as markets take pause. Markets appear to have paused as they look for further direction from the Fed on interest rate direction and await China’s return from their lunar holidays. Equity markets retain an underlying support with the prospect the Fed will moderate interest rate hikes, but investors have paused heading into a wave of US marquee corporate earnings. Euro holds near 9-month highs, Copper steadies near 7-month highs, and oil prices steadies near 2-month highs as risk sentiment improves. Today saw upbeat PMI results across EU, Germany & France, investors are now focused on the US Composite, Manufacturing & Services PMI at 9.45am est. to help provide intraday direction to currency markets.

In other news. British business confidence hits a 2-year low as recession fears mount, while Eurozone activity unexpectedly grows for the first time since June. Egg prices rose 60% in 2022 according to the consumer price index. Canadian stocks hit highest levels since June outperforming US markets on ‘value factor’, Purpose says. Poland asks to send German tanks to Ukraine, while Russia presses attacks in south Ukraine.

In Currency markets. The US$ index stalls at near 7-month lows vs a basket of currencies. Euro holds steady near 9-month highs on upbeat PMI data. GBP remains under selling pressure as disappointing data highlights increasing recession concerns. CNY eases 0.15%, while Asian currencies are flat on average vs US$. Trading currencies are mixed with ZAR weakens 0.65%, MXN & NOK fall 0.25%, AUD & CHF are down 0.15%, while NZD is flat, SEK is up 0.15%, JPY firms 0.35% vs US$.

Oil prices hold steady as markets balance a China reopening by ongoing global economic concerns. C$ is little changed as investors adjourned to the sidelines ahead of the Bank of Canada interest rate decision on Wednesday. Tomorrow’s BoC will also offer minutes from its policy-setting meeting for the first time in its history. Intraday expect C$ hold within its current trading range. Support resets to 1.3305 while resistance lowers to 1.3425.

EURCAD eases slightly, but in the short-term a less hawkish BoC vs a hawkish ECB will likely see Euro have room for further strength. Support holds at 1.4500 while resistance remains at 1.4685.

Euro eases towards 1.0850 as markets await US PMI data. Euro retains an underlying support as Eurozone activity unexpectedly grows for the first time since June alongside the ECB continuing hawkish rhetoric. ECB Knot said that interest rates would rise by 50bps in both Feb & March and to continue to climb in the following months. EBC President Lagarde also said that the central bank will continue raising interest rates to slow inflation. The hawkish ECB will be the primary drive for Euro strength in Q1. Support holds at 1.0800 while resistance remains at 1.0950.

GBPEUR weakens further after the divergence of EU & UK PMI data and a hawkish ECB. Support holds at 1.1300 (.8850) while resistance remains at 1.1450 (.8733).

GBP drops on the disappointing UK PMI data. The pound came under renewed selling pressure after UK S&P unexpectedly fell to 48 in January. The impact of the British business confidence hitting a 2-year low increases UK recession fears. Adding further pressure to the pound is the ongoing labor disputes, renewed Brexit concerns and ongoing political jitters. Markets will focus on BoE for direction on how the bank will manage inflation with increasing expectations the UK is heading into a recession. Support holds at 1.2280 while resistance resets to 1.2400.