Tuesday July 5th, 2022

The US$ rallies, oil prices steady, equity markets are down while US yields are mixed as recession risks build. Currency and equity markets fall as concern over the possibility of a recession outweighed optimism over US-China talks aimed at tariff reductions. Euro tumbled over 1% vs US$, while the US$ index breaks through 106 testing a fresh 20-year high as investors flock to the safe-haven US$. Intraday a light economic calendar with CAD Building Permits and US Factory orders, with markets focused on Friday’s Key US Nonfarm Payroll report. Expect currencies to remain volatile and vulnerable to further weakness. In other news. Treasury Secretary Yellen & Chinese V.Premier Lui in a video call today discussed US economic sanctions and tariffs. Russia is set to switch off the gas for work on a key pipeline – Germany fears the worst (CNBC). US Nomura expects recession in the Eurozone area, UK, Japan, South Korea, Australia & Canada next year, the brokerage firm said in a research note (CNBC). The UK economic outlook is ’very uncertain’ – Global economic conditions have worsened, warns the Bank of England. Norwegian oil and gas output falls as workers go on strike. The currency markets. Euro slides to a 20-year low against the US$ as recession fears build – EUR/US$ parity is in focus. Commodity currencies came under renewed selling pressure, AUD fell almost 1% despite the RBA hiking interest rates again. Indian Rupee weakened vs US$ hitting a new record low. Safe-haven CHF & JPY hold steady vs G10 peers. CNY is flat, while Asian currencies fall 0.3% on average vs US$. Trading currencies under pressure, JPY down 0.2%, while CHF slips 0.35%, ZAR down 0.5%, MXN falls 0.7%, NZD weakens 0.85% and AUD tumbles 1% vs US$.

Oil prices are mixed with Brent Crude down, while WTI rises as markets balance between recession fears, short term demand and increasing supply disruptions. C$ holds steady in comparison to its G10 peers, finding support from strong oil prices and expectations of aggressive BoC rate hikes. Canadian consumer inflation surged, hitting fresh highs in the short-term and up “significantly” over the long-term the BoC survey showed on Monday, increasing calls for a very rare 75bps rate increase next. Any weakness in oil prices could put pressure on the loonie, but intraday look for C$ remain within its current range. Support resets to 1.2870 resistance rises 1.2970.

Euro tumbles on recession fears with many calling for Euro parity with the US$ next. Euro tumbled through 1.0300 retesting a fresh 20-year low vs US$ as recession fears grow as the Eurozone tackles Russian energy sanctions, supply chain disruptions, soaring inflation, supporting Ukrainian war & refugees. The ECB is expected to raise interest rates by 25bps in July, but it is unlikely to provide the support the Euro needs in the short term. Bias remains for further Euro weakness, with the potential of seeing 1.000 EUR/US$ in Q3. Support resets to 1.0260 while resistance lowers to 1.0350.

EURGBP falls as recession fears grow across the Eurozone, while the pound simply falls less and remains vulnerable to further weakness. Support holds at .8540 (1.1709) while resistance remains at .8680 (1.1520).

GBP holds at 1.2000 on US$ strength, dovish BoE comments and surging energy costs. The BoE dovish comments put pressure on the pound. The BoE says Global economic conditions have worsened, putting pressure on the finances of UK households and businesses. The prospect of the first train strike in 27-years, supply shortages pushing UK car sales to lowest levels since 1996 and the CEO of Sainsbury’s warns cost of living squeeze will intensify. The only positive is that the pound didn’t fall as hard as Euro. Bias remains for GBP to test 1.1600 vs US$ in Q3. Support rests to 1.1970 while resistance lowers to 1.2070.