Wednesday December 29th, 2021

The US$ is flat, Oil prices weaken, equity markets are mixed while US yields edge higher in thin holiday markets. The US$ is finding support on a combination of approaching rate hikes by the Fed, firmer US yields and the reduced expectations of future lockdowns in the US. Intraday US Pending Home Sales and Goods Trade Balance will be released but these reports are unlikely to trigger a noticeable market reaction. In other news. The Christmas rally in European stocks pauses near 5-week highs as investors exercise caution into year-end as Omicron cases surge globally. China warns of “drastic measures” if Taiwan provokes on independence. Russia says failure to certify Nord Stream 2 in not an option-RBC. Covid. UK, Italy, Greece, Portugal, France, US, and Canada all report record daily covid cases, raising testing and quarantine fears. China Xian enters its 7th day of lockdown restrictions. The US CDC cut its covid isolation, quarantine guidelines from 10 days to 5 days. In currency markets. JPY test near 1-year lows, down 11.44% ytd, Turkish lira slips 3% vs US$ and US$ index extends gains up 7.1% ytd. CNY edges higher 0.05% while Asian stocks are flat on average vs US$, while outlier PHP tumbles 0.7% vs US$. Trading currencies are under pressure with MXN flat, while JPY & AUD down 0.1%, NZD falls 0.25%, NOK weakens 0.4% and ZAR tumbles 0.7% vs US$.

Oil prices slip in early trading with investors turning cautious as Omicron cases surge globally increasing demand concerns. Russian deputy PM said that OPEC+ has resisted calls from the US to boost output and OPEC is keeping to its current policy. C$ has weakened slightly in thin holiday trading as oil prices ease, domestic covid cases hit record daily highs and provinces increase covid restrictions. Support holds at 1.2750 and resistance remains at 1.2850.

Euro holds near 1.13 in thin trading markets. Euro remains vulnerable to further weakness as the US$ strengthens as markets remain cautious amid heightened Omicron fears is keeping the single currency on the back foot. Intraday US economic releases and Omicron updates will dictate market direction. Support at 1.1250 and resistance at 1.1350.

EURGBP dips slightly in quiet holiday markets. Support lowers to .8400 (1.1904) with resistance at .8600 (1.1628)

GBP holds steady above 1.3400 despite Omicron and Brexit concerns. Ongoing French/UK fishing license disputes, unresolved NI protocol and the introduction of rules delayed by a year to keep trade flowing will increase pressure warn UK companies. Scotland, Wales & NI have already increased covid restrictions and England may increase further restrictions as UK reported almost 130k new cases on Tuesday. Bias returns to sell GBP on rallies vs US$. Support at 1.3350 and resistance resets 1.3455.