Tuesday May 10th, 2022

The US$ remains firm, oil prices weaken, equity markets firm while US yields dip as risk-sentiment remains fragile. Equity markets rebound as dip buyers emerge, oil declines after the EU softened some proposed sanctions on Russia and China continues to struggle with fresh outbreaks of covid. The US$ slips from its 20-year highs as risk-off sentiment eases, but sentiment remains fragile from ongoing global economic growth and inflation concerns. Investors’ attention shifts to the US April inflation report on Wednesday to provide clues on the level of aggression for the Fed’s next rate hike. Intraday speeches from three Fed policymakers, Treasury Secretary Yellen and US President Biden will help provide market direction. In other news. European shares steady after steepest slide for global stocks since 2020 (FT). Ukraine’s Odessa fights fires after Russian victory day strikes, while President Biden signs Lend-Lease Ukraine aid into law. China rebukes the US for changing Taiwan wording on the state department website. Malaysia may cut palm oil export tariff by half amid the global supply crisis. The currency markets. The US$ remains firm as safe-haven flows continue to dominate, while commodity currencies remain under pressure despite the equity market rebound. GBP, NOK, AUD & NZD holds near 2-year lows, CAD sits at 18-month lows vs US$ as currency markets remain under pressure. CNY firms 0.1%, while Asian currencies are up 0.15% on average vs US$. Trading currencies are mixed with NZD & CHF are down 0.25%, NOK weakens 0.5% while MXN & AUD are flat, and JPY & ZAR are up 0.15% vs US$.

Oil prices extend losses down over 1.5% in early trading as ongoing economic worries, a strong US$ and the EU struggles to reach a deal on a Russian oil ban. C$ holds near its 18-month lows as rising concerns over the global economic outlook negatively impacted the commodity-linked loonie. The C$ continues to outperform its G10 peers, but vs the US$ the loonie has room for further volatility. Markets will be focused on Wednesday’s US inflation report and Thursdays BoC Deputy Governor’s speech for direction. Support resets to 1.2892, while resistance rises 1.3090 (Nov/20).

Euro holds above 1.05 after a slight shift of risk-sentiment & improving ZEW data. The ZEW Economic Sentiment came out significantly better than expected for both the EU & Germany. The Euro has outperformed its peers Monday after a sharp upsurge in 10-year government bonds saw fresh investor buying of Euro’s. Expect markets to start to consolidate as it heads into the Key US inflation report on Wednesday. Support holds at 1.0475, while resistance remains at 1.0640.

EURGBP weakens as profit taking emerged after Euro tested 4-month highs vs GBP, but in the short term expect volatility to continue. Support holds .8485 (1.1785) while resistance remains .8600 (1.1628).

GBP rebounds in early trading as risk-off sentiment eases. The pound bounces despite strong negative headwinds of increasing Brexit pressure over the Northern Ireland protocol, spiking inflation levels and slowing economic growth. BOE Saunders said that he would prefer the policy to quickly move to a neutral stance amid heightened risks of inflationary pressures. Look for the pound to consolidate heading into the US CPI report on Thursday. Support holds at 1.2275 while Resistance remains at 1.2450.