Wednesday August 17th, 2022

The US$ & oil prices are steady, equity markets are mixed, while US yields firm ahead of the US Fed minutes.  Currency, commodity, and equity markets steadied ahead of an expected hawkish Fed minutes today as investors look for clues on policy makers’ sensitivity weakening economic data. In Asia equity markets rose amid speculation that China may deploy more stimulus to shore up its ailing economy after Premier Li Keqiang asked local officials from six key provinces to bolster pro-growth measures. Today Fed Bowman Speech, US Retail Sales & the FOMC minutes will drive intraday market direction. In other news. UK inflation hits a new 40-year high of 10.1% as food and energy prices continue to surge. China warns the US against sailing warships through the Taiwan Strait. The Eurozone saw Q2 growth as economists warn of coming recession due to high inflation and supply chain issues. US President Biden signs climate, tax & health bill into law. The EU weighs up the Iranian response to the ‘final text’ on a nuclear deal. The currency markets. China bounces off 3-month lows, GBP, EUR & US$ are flat, while Commodity currencies remain under pressure. CNY firms 0.1% while Asian currencies are down 0.2% on average vs US$. Trading currencies remain under pressure with NOK & CHF slip 0.2%, while JPY, MXN & NZD down 0.45%, AUD weakens 0.8% and ZAR tumbles 1.1% vs US$.

Oil prices hold near six-month lows as recession fears continue to weigh on demand. The C$ holds steady in early trading despite oil prices slipping almost 4% on Tuesday. CAD inflation slowed to 7.6%, but it is still above the BoC 2% target rate. The BoC Governor Macklem said Canada’s annual inflation may have peaked, but it remains too high. Markets continue to expect the BoC to continue to raise interest rates aggressively at its next meeting on Sept 7th. Intraday it will be all on the FOMC minutes, but our bias is that C$ weakness will be limited to 1.2950 levels. Support holds at 1.2850 while resistance remains at 1.2950.

Euro remains on the backfoot after missing GDP target and Fed minutes in focus. The EU saw Q2 growth at 3.9% yoy missing expectations of 4%, while economists believe the Q2 growth might be the economy’s last sign of strength before higher inflation and supply chain problems is likely to cause a mild recession in the next 12 months. Today the US Retail Sales & FOMC minutes will drive intraday direction, our bias remains bearish for Euro heading into Q3. Support resets to 1.0100 while resistance rises to 1.0200.

GBPEUR holds steady, but momentum supports a stronger pound with BoE expected to raise interest rates, while the EU is expected to enter a mild recession into Q3 as supply chain issues and energy uncertainty bites. Support resets to 1.1830 (.8453) while resistance rises to .1.1950 (.8368).

GBP hovers around 1.2100 as the US$ steadies ahead of the FOMC minutes. The pound spiked briefly after the surging UK inflation put focus on the BoE’s next policy meeting and expectations of further rate hikes. UK inflation tested a fresh 40-year high hitting 10.1% as the cost of food, drink and energy driving the inflation spike. At the same time UK housing prices has slowed from 12.8% to 7.8% yoy June which is a positive sign for the BoE. Domestically, political uncertainty remains as Liz Truss & Rishi Sunak continue to pitch to conservatives ahead of the announcement of the new UK PM on September 5th. Intraday US Retail Sales & FOMC minutes will drive intraday direction. Support resets to 1.2025 while resistance rises 1.2140.