Wednesday December 1st, 2021

The US$ is flat, oil prices rally +4%, equity markets and US yields are up following the Fed chairs comments. On Tuesday the Fed chair Powell struck a hawkish tone while acknowledging the risk of the Omicron variant and signals support for quicker ‘taper’ of the bond-buying scheme paving the way for a US rate hike. Focus will be on day two of the Fed chairs testimony, US ADP Employment Change and US Manufacturing PMI to provide intraday direction to currency markets. In other news. The OECD warns Omicron may intensify supply shortages and inflation. Ukraine urges NATO to prepare sanctions to deter a Russian attack. Japan is keen to speed up a ‘digital’ JPY to keep up to China’s progress. Russia orders some US diplomatic staff to leave in a retaliatory move to the US. Covid. The US tightens travel rules as more countries secure borders to stem the spread of the Omicron variant. Merck’s Covid pill secures a narrow backing from the US regulatory panel. Japan halts new incoming flights for a month and Germany detects Omicron cases among the vaccinated. In currency markets. Turkish lire (down 47% in 2021 vs US$) rebounds 2.4% after its central bank intervenes, Korean Won hits a 2-week high vs US$ and CNY tests a 6-month high vs US$. CNY dips 0.1% while Asian currencies are mixed with SGD, PHP, KRW & INR up 0.2% on average vs US$ and TWD, MYR and IDR fall 0.25% on average vs US$. Trading Currencies are also split with JPY down 0.2%, NOK is Flat, while ZAR up 0.2%, and AUD, MXN & NZD firm 0.4% vs US$.

Oil prices rally 4% into 2-days of OPEC meetings discussing their next steps of oil supply releases in the face of demand concerns as the Omicron variant prompts travel restrictions and fresh lockdowns. In November Brent fell 16% and WTI fell 21%. C$ remains volatility seesawing with oil prices as the Loonie tested 1.2837 (Sep21st) yesterday as oil prices fell 5% and rebounding today to open near 1.2750 as oil prices strengthen into the OPEC meeting. Canada’s economy grew at 5.4% beating expectations, but the C$ still fell 3.1% vs US$ in November, its biggest decline since March 2020 triggered by oil price volatility. Today alongside the US economic reports & the Fed Chairs testimony, markets will be focused on oil prices and CAD Manufacturing PMI for intraday direction. Support holds at 1.2705, while resistance resets at 1.2799.

Euro steadies above 1.1300 vs US ahead of US data and Fed Powell’s testimony. Euro steadies but remains vulnerable to further weakness as the EU considers new travel restrictions and member countries look to expand lockdowns. Eurozone inflation remain near record highs, but the ECB policy makers cite growth concerns to defend their ongoing bond purchasing policies. A busy day of US economic releases and a 2nd day of Fed Chair testimony will drive intraday currency direction. Support holds 1.1285, while resistance resets at 1.1365.

EURGBP dips as caution returns on the prospect of fresh lockdown restrictions across the EU and the rebound of US yields on Fed Chair Powell’s comments. Support rises to .8440 (1.1848) while resistance holds to .8515 (1.1744)

GBP holds above 1.33 vs US$ on positive UK manufacturing data. The pound remains volatile rebounding from near 2021 lows of 1.32 to 1.3320 despite BoE commenting that it may be premature to talk about rate hikes under the current conditions. Markets will continue to be driven by US Fed Chairs comments and US economic data, but GBP remains vulnerable to further weakness.  Support resets to 1.3275 with resistance at 1.3360.