Wednesday January 12th, 2021

The US$ is flat, oil at 2-month highs, equity markets are up, and US yields are mixed ahead of the US inflation report. Markets will be focused on today’s US CPI report which is expected to rise to 7% y/y Dec, which would be its highest level in 40 years. We anticipate US CPI at 7% would likely cement a March interest rate hike in the US which will likely boost the US$ Index vs a basket of major currencies. In other news. The UK PM is accused of breaking his own covid rules and faces lawmakers today with many calling for his resignation. Russia lays out its demands to NATO following talks with the US in Geneva over the Ukraine crisis. As the FED is set to raise rates, China may opt for modest easing to cushion slowing domestic growth. Covid. Indian covid cases rise by 194k on Wednesday. Quebec to impose tax on those who refuse covid vaccinations. China blocks some US flights after passengers get covid. In currency markets. Currency markets consolidate ahead of the US$ CPI report. CNY hits a 2022 high up 0.15% while Asian currencies are flat on average. Trading currencies are mixed with JPY, MXN & NZD are down 0.15% while AUD & CHF are flat and NOK & ZAR rally 0.3% vs US$.

Oil prices extend gains with Brent crude crossing above US$84pb as investors shrug off Omicron concerns taking oil prices to fresh 2-month highs. C$ tracked surging oil prices rallying almost 1% vs US$ to a fresh 2-month high of 1.2534. Intraday the US CPI report will be the key driver to currency markets todays, a high inflation number could spark a fresh US$ rally on expectations of a March Fed rate hike. Support resets to 1.2515 and resistance lowering to 1.2608.

Euro continues to pivot on 1.1350 vs US$ ahead of the US inflation data. Domestically mixed EU Industrial Production Data was largely ignored as markets await the key December US CPI report. ECB Chief Economist Lane commented this week that he still sees inflation back below the 2% target by 2024 and EBC President Lagarde spoke of an “unwavering” commitment to stable prices, but the German central bank Nagal said he sees a “danger” if inflation stays high. Bias remains for a weaker Euro vs US$, CAD & GBP in Q1-22. Support remains at 1.1250 and resistance holds at 1.1370.

EURGBP holds near 2-year lows on speculation of further BoE rate hikes. Support resets to .8280 (1.2077) while resistance resets at .8400 (1.1905)

GBP holds steady ahead of the US CPI. The pound holds steady despite Brexit concerns, domestic political uncertainty, finding support from the prospect of BoE rate hike. The UK PM faces question-time over “party-gate” as he apologies for his actions and his political future remains uncertain. Intraday expect markets to hold any response until the US CPI data release. Support resets at 1.3550 while resistance rises to 1.3660.