Tuesday March 14th, 2023

The US$ firms, oil prices slump, equity markets are mixed, and US yields rise ahead of the US inflation report. The US dollar rebounds and treasuries steady as investors await the US inflation data which is expected to ease to 6% (y/y Feb). Markets still expect the Fed to keep up its inflation-fighting efforts despite the SVB collapse, traders assigned an 85% probability of a 0.25% rate hike when the FOMC meets March 21-22. The two-year Treasury climbed 19 bps to 4.17%, after rates dropped more than half-percentage point on Monday its biggest move since the 1980s. Today US CPI will be the primary driver for market direction.

In other news. China’s Xi plans to speak with Zelensky for first time since Ukraine war broke out. Volkswagen announces five-year $193 billion investment plan as electrification gathers pace. Finance Minister Freeland met with the head of Canada’s financial regulator in the wake of SVB collapse. President Biden to visit Ireland on anniversary of Good Friday Agreement. Global bank stock rout deepens as SVB collapse fans contagion fears (Reuters).

In Currency markets. The US$ rebounds, recovering some weakness after the collapse of SVB as investors shift focus to the US inflation report today. MXN remains under selling pressure falling 4% in March after hitting a 5-year high vs US$ in February. CNY weakens 0.5%, while Asian currencies 0.2% on average vs US$. Trading currencies are under pressure with CHF & SEK flat, NZD down 0.15%, AUD slips 0.3%, MXN falls 0.6%, while JPY, ZAR & NOK weaken 0.75% vs US$.

Oil prices slump over 2%, extending the previous days slid as the collapse of SVB soured risk-on sentiment. C$ holds relatively steady despite a strengthening US$ heading into the US inflation report and falling oil prices. The fall out of the SVB collapse suggests the Fed will take a more cautious tone to future rate hikes, this supports C$ as the expectations of interest divergence between the BoC & Fed reduces. Today US CPI will drive intraday direction.  Support lowers to 1.3670 while resistance resets to 1.3790.

EURCAD holds steady going into the US inflation report today. Support resets to 1.4640 while resistance rises to 1.4750.

Euro holds within 1.0650-1.0750 trading band as markets focus on US CPI. Expect risk-on sentiment to remain on the back-foot after the collapse of SVB, we expect Euro to be capped on any short-term rallies. Spanish inflation eased slightly to 6%, while Italian industrial output slipped which with the combination of the SVB collapse may help the ECB ease their hawkish interest rate stance. Today any print outside of CPI expectations will increase market volatility. Support rises to 1.0640 while resistance resets to 1.0750.

GBPEUR holds steady heading into the US CPI report. Support holds at 1.1200 (.8928) while resistance remains at 1.1400 (.8772).

GBP stalls below 1.2200 after UK jobs data and focus shifts to US CPI. The pound holds steady as UK unemployment rate holds steady at 3.7% in January and the average earnings including bonus declined to 5.7% from 6%. As UK pay growth slows, and the collapse of SVB is expected to cause the BoE to pause its run of interest rate hikes at its rate decision next week. Focus will be the US inflation report today for intraday direction. Support resets to 1.2080 while resistance rises to 1.2200.