Tuesday March 22nd, 2022

The US$ firms, oil prices slide, equity markets and US yields are up following Fed Chairs hawkish comments. Fed Chair Powell on Monday signaled the central bank will take more aggressive measures to clamp down on inflation. Powell said the Fed is prepared to raise interest rates by 50 bp’s at the next policy meeting if needed and signaled 6 more moves in 2022. In Ukraine the Kremlin says Ukraine talks slower and less substantial than hoped. Intraday central bank speakers ECB Lagarde, Fed Williams & Mester, ECB Lane and BoE Cunliffe will help provide currency market direction today. In other news. A warning from President Biden who sees risk of Russian cyber attacks on US corporations. Japan issues an urgent call to save energy warning of blackouts after an earthquake last week caused a serious power shortage. More than 3.5 million people have fled Ukraine – UNHCR. Canada’s CP Rail to restart operations after arbitration agreement. In the currency markets.  JPY tumbles approaching 121 vs US$, RUB extends weakness down 4.9%, and Turkish Lira remains under pressure down almost 7% in March vs US$. CNY dips 0.15%, while Asian currencies are down 0.1% on average vs US$. Trading currencies are mixed with JPY tumbling 1.2%, CHF is down 0.2%, NOK is flat, while MXN & ZAR are up 0.2%, AUD firms 0.4% and NZD rallies 0.8% vs US$.

Oil prices slip after EU foreign ministers are split on whether to join the US in banning Russian oil, with many saying the bloc is too dependent on Russia’s fossil fuels to withstand imposing sanctions. C$ holds steady near 6-week highs, gaining for 5 days with the potential of further loonie strength after CP rail dispute is resolved and commodity prices remain firm. CBC reported that the Liberals and NDP have struck a tentative deal that could keep the liberals in power until 2025. Intraday CAD Raw Material Price Index & Industrial Production Price and Fed Comments will help provide currency markets direction. Support holds at 1.2575, if breached look for 1.2502 (2022 lows), while resistance remains at 1.2690.

Euro remains capped at 1.1050 as markets focus on central bank speakers today. Euro traded within a tight range in early trading with the lack of high tier data releases to provide direction. We expect Euro to remain capped due to the growing divergence of interest rates between the Fed and ECB, the growing strain of refugee’s entering the EU and the expected increased costs of EU defense spending. Support resets to 1.0940, while resistance lowers to 1.1035.

EURGBP falls following the hawkish fed and dovish ECB comments, while the BoE sits in the middle having already raised rates 3x’s in 2022 with the prospect of more BoE hikes if required. Support resets to .8300 (1.2048) while resistance lowers to .8400 (1.1905)

GBP breaches 1.32 as risk-on sentiment returns to the pound. The pound rallies to a 9-day high vs Euro and extends gains vs US$ as markets focus on Wednesday’s UK inflation data and Finance minister Sunak’s spring statement. Sunak said it’s more important than ever to take a responsible approach to the public finances, a day before his budget to parliament. We see the potential of further GBP strength vs EUR, but the pound will likely be capped vs US$. Support resets to 1.3150 while Resistance rises to 1.3250, if breached look for potential rally to 1.3325 next.