Tuesday September 20th, 2022

The US$ & oil prices steady, equity markets fall, while US yields rise as risk-sentiment sours. The US$ steadies, ten-year US yields near 3.5%, equity markets decline as investors remain cautious ahead of the key Fed rate decision on Wednesday. The US central bank kicks off its meeting today and is expected to hike interest rates by 75 bps on Wednesday, a signal rates are heading above 4%. The policy sensitive two-year rate hit the highest level since 2007 and is poised to crack above 4%, reflecting hard-landing fears. Today Federal Reserve meeting begins, speeches from ECB Lagarde & BoC Beaudry, also in focus US Building Permits, US Housing Starts and CAD Key inflation report will help provide intraday direction to currency markets. In other news. World leaders are expected to attend the the 77th UN General Assembly this week in NYK. Swedish central bank surprises markets with a 1% rate hike. UK PM Truss admits UK-US trade deal not on the agenda (FT). German producer prices posted a surprise record jump in August. PepsiCo ends Pepsi, 7UP production in Russia months after promising halt over Ukraine. Ukraine marches farther into liberated lands, separatists call for urgent referendum (Reuters). In currency markets. JPY holds at 24-year low vs US$, SEK weakens despite 1% interest rate hike, commodity currencies give back Monday’s gains as the FOMC begins. CNY dips 0.15%, while Asian currencies are down 0.2% on average vs US$. Trading currencies come under renewed selling pressure with CHF slips 0.15%, while JPY & MXN are down 0.35%, AUD & NOK fall 0.5%, SEK weakens 0.66%, and NZD tumbles 1% vs US$.

Oil prices stall as the expected US Fed rate hike paints a bearish economic picture and increases expectations that demand is likely to continue to fall. C$ steadies near 1.33, below Monday’s low of 1.3344 last seen in November 2020 as investors focus on Canada’s inflation number this morning. Canada’s inflation rate for Aug y/y is expected to ease to 7.3% vs 7.6% in July, potentially lower for a 2nd month, but markets anticipate the BoC will maintain their hawkish stance into their next meeting. Support resets to 1.3270 while resistance holds 1.3389 (Oct 2020 highs).

Euro gives back Monday’s gains, retesting parity on resurgent US$ demand. Euro retests parity as investors remain singularly focused on the US Fed rate decision on Wednesday. German Producer Price Index surprised markets with m/m saw a record spike to 7.9% vs 5.3% expected and y/y jumped to 45.8% vs expected 37.2%. Focus shifts to ECB Lagarde’s speech today where she is expected to maintain the ECB’s hawkish stance. Ahead of the Fed Rate decision Wednesday we expect the Euro to remain on the back-foot vs US$. Support remains at .9950 while resistance holds at 1.0050.

GBPEUR bounces off lows as GBP stabilizes while Euro faced selling pressure ahead of ECB Lagarde speech. Support holds at 1.1380 (.8787) while resistance remains at 1.1525 (.8676).

GBP remains capped at 1.1450 as risk sentiment increases. The pound struggles to hold on to Monday’s gains as risk-sentiment sours and lifts demand for the safe-haven US$ heading into the US Fed rate decision Wednesday. The next few days are expected to remain volatile for the pound as markets brace for both the Fed & BoE interest rate decisions. We remain bearish GBP heading into winter with the ongoing energy crises and expectations strike actions will resume after Queen was laid to rest. Intraday US housing data & ECB Lagarde comments will help provide direction to the pound. Support holds at 1.1355 (March 1985), while resistance remains at 1.1450.