Wednesday August 24th, 2022

The US$ steadies, oil prices firm, equity markets are down, and US yields are mixed as markets remain cautious ahead of Jackson hole Fed symposium. Currency & equity markets remain under pressure after Fed’s Kashkari says it is ‘very clear’ the Fed must tighten policy amid mounting signs of a global economic slowdown. The key event of the week will be Fed Chair Powell’s speech on Friday which will provide a sense of how hawkish the US central bank will be. In focus today the US Durable Goods Orders, Nondefense Capital Goods Orders ex-Aircraft & Pending Home Sales will provide currency markets intraday direction. In other news. Brent oil climbs above US$100pb amid talk of OPEC output cuts. The US says the Iran nuclear deal has made progress but warns ‘gaps’ remain. Defiant Ukraine marks Independence Day 6-months after invasion. Thai court suspends PM Prayuth from official duties pending his 8-year term limit review. China faces heatwave havoc impacting its power, crop production and livestock. Japan to waive pre-departure covid tests for vaccinated travelers and Singapore drops most indoor mask requirements. The currency markets. Euro holds below 1.0000 vs US$, CNY remains weak while the US$ Index stabilizes after Tuesday’s sell-off. CNY falls 0.45% while Asian currencies are down 0.2% on average vs US$. Trading currencies are mixed with AUD, ZAR & NZD are down 0.25% while MXN is up 0.1%, JPY & CHF firm 0.25% and NOK rallies 0.5% vs US$.

Oil prices extend gains +1% amid ongoing talk that OPEC could cut output if Iranian oil comes back online. C$ rallied aggressively on Tuesday, rebounding from its lowest levels since July 15th on the back of disappointing US PMI results. Oil prices have continued to advance, providing some additional support to the loonie. In the bigger picture, the US$ remains the primary driver of direction and the C$ remains vulnerable to continue volatility ahead of the Fed Chairs speech on Friday. Intraday US data releases and oil prices will provide intraday direction. Support reset to 1.2935 while resistance remains at 1.3060.

Euro continues under pressure ahead of US data & Fridays Fed Chairs speech. Euro continues to struggle near 20-year lows as risk-off flows dominate as investors continue to favour the safe-haven US$. The month-end 3-day unscheduled cut-off of the energy supplies for maintenance of Nord Stream 1 pipeline has increased investor concerns, adding further downward pressure on the Euro. The US economic releases will provide intraday direction, but we expect markets to remain somewhat sidelined ahead of the Fed Chairs speech on Friday. Support holds at .9870 while resistance remains at 1.0000.

GBPEUR holds steady as both currencies remain under pressure as risk adverse sentiment continues to favour the US$. Support holds at 1.1730 (.8525) while resistance remains at 1.1950 (.8368).

GBP fails to hold gains above 1.18 as risk-off sentiment continues. The pound remains under pressure as it tackles increasing strike action, supply chain challenges, surging energy costs and slowing economic growth. With the backdrop of the slowing economy markets anticipate the Bank of England will continue to raise interest rates towards 4% by Q1/23 as it continues to battle the prospect of UK inflation hitting 18% in 2023. US Data releases and the US Fed Reserve symposium will continue to drive GBP direction this week. Support holds at 1.1725 while resistance remains at 1.1850.