Wednesday December 8th, 2021

The US$ dips, Oil prices rise, equity markets are mixed and US yields ease as markets consolidate gains on geopolitical concerns. Markets consolidate Tuesday’s gain and takes a cautious tone after the US President threatened to impose economic and other measures on Russia if it invades the Ukraine. Intraday markets are focused on US Jolts Job openings direction and then Friday’s key US inflation report which could set the stage for next weeks Fed interest rate decision. Expect the US$ to be supported as omicron concerns ease and investors focus shifts back to central banks on how they plan to balance growth & covid vs the inflation tradeoff. In other news. Olaf Scholzis appointed the German Chancellor replacing Angela Merkel after 16 years. The US the House passed a bill allowing the Senate to raise the debt ceiling with a simple majority vote. The US to demand a halt to Nord Stream 2 if Russia invades the Ukraine. China’s Evergrande bondholders yet to be paid as crucial debt deadline passes. Covid. Omicron significantly reduces covid antibody protection in a small study of Pfizer vaccine recipients, but says three vaccine doses neutralizes the Omicron variant. The UK is expected to announce a new vaccine passport and a potential new work from home order. Covid surge causes Japan’s economy to shrink to 3.6% y/y faster than estimated. In currency markets. CNY hits its highest level since May 2018, GBP sets a fresh 2021 low and AUD hits 1-week highs vs US$. CNY firms 0.3%, while Asian currencies are up 0.1% on average vs US$. Trading currencies are mixed with NZD down 0.25%, while AUD and JPY up 0.1%, MXN strengthens 0.2%, NOK & ZAR rally 0.4% vs US$.

Oil prices are volatile in early trading ahead of the North American open on rising geopolitical concerns and Omicron updates. Oil prices have rebounded nearly 10% since Dec 1st on signs Omicron is having a limited impact on demand. C$ posted its biggest gains in 10-weeks with firming oil prices easing concerns over the Omicron variant. C$ holds near its highs despite volatile oil prices and markets focus on today’s BoC interest rate decision and rate statement. The BoC is expected to keep rates on hold at 0.25% and is likely to have a cautious tone on the Omicron variant and its economic implications. Intraday look to sell US$ on any pull backs. Support resets to 1.2600 and the resistance resets to 1.2690.

Euro consolidates below 1.13 despite a weaker US$ and US yields as geopolitical concerns grow. The US imposing a political boycott of the Beijing Olympics and the threat to impose economic measures on Russia over Ukraine has raised concerns amongst investors. Focus will be on US Jolts jobs data today, but the key report this week is the US CPI report on Friday which will set the stage for the FOMC meeting on Wednesday. Bias remains to sell Euro on any rallies continues driven by the ECB and FED interest policy divergence. Support holds at 1.1235 and resistance remains at 1.1305.

EURGBP rallies as Omicron concerns casts doubt of a BoE rate hike and Brexit concerns adds further pressure to the pound. Support at .8440 (1.1848) with resistance at .8600 (1.1628)

GBP tumbles to a fresh 2021 low at 1.3165. Expectations that the BoE will hold off raising rates next week due to concern over the Omicron variant added fresh pressure to the pound. Brexit concerns grew after the DUP leader Donaldson said that the UK Government must show actions not words to remove the Irish Sea Border and warned the need for the UK government to take swift and decisive action. The prospect of a new work from home order due to the Omicron variant put additional pressure on the pound and in short term the pound remains vulnerable to further weakness. Support resets to 1.3133 (Dec20th) with resistance lowers to 1.3255.