Wednesday January 18th, 2023

The US$ weakens, oil prices are up, equity markets are mixed, while US yields ease as risk sentiment improves. The IMF signals upgrade to forecasts as optimism spreads at Davos as China reopens and data suggests that Europe will a avoid deep recession. Equity markets are struggling for direction as investors remain unsure of monetary policy and corporate earnings. The US$ index dropped to 9-month lows, while Japanese yen weakens vs its peers after the BoJ kept monetary policy unchanged. Today focus remains on Davos Summit, US Retail Sales, US PPI, The Fed’s Beige Book and Fed’s Bullard, George, Harker & Bostic speeches for intraday direction.

In other news. Global oil demand set to reach record high as China reopens, IEA says. “Big oil peddled the big lie”: UN Chief slams energy giants for ignoring their own climate science (CNBC). Kissinger backs Ukraine’s NATO membership says Russia needs the opportunity to rejoin global system. Helicopter crash near Kyiv kills Ukraine’s interior minister and at least 17 others. Chinese Vice-Premier He tells Davos meeting that China is returning to normal faster than the government expected.

In Currency markets. US$ eases, JPY tumbles on BOJ policy announcement, CNY hits 1-week highs on lunar holiday demand and petro-currencies firm as oil prices rise. CNY firms 0.3%, while Asian currencies are up 0.2% on average vs US$. Trading currencies are mixed with JPY down 0.85%, while NOK is up 0.2%, ZAR & MXN gain 0.3%, AUD firms 0.45%, NZD strengthens 0.75% and CHF jumps 0.9% and SEK rallies 1.2% vs US$.

Oil prices retest December highs on increasing China reopening optimism and is supported by a positive IEA report. C$ extends gains finding support from a combination of a weaker US$, rising oil prices and BoC rate hike expectations. Tuesday’s inflation report showed that core measures remain little changed, increasing expectations that the BoC will increase interest rates at its meeting this month. Today sees CAD Industrial Product Price & Raw Material Price Index, but US data releases will be the primary focus and driver to direction intraday. Support resets to 1.3320 while resistance lowers to 1.3410.

EURCAD extend gains as investors’ confidence grows that Europe will be able to stave off a deep recession. Support holds at 1.4450 while resistance remains at 1.4560.

Euro extends gains amid a weaker US$ and a hawkish ECB. Euro extended gains, retesting weekly highs of 1.0860 in tandem with a weaker US$ and on ECB Villeroy comments dismissing dovish ECB talks. Domestically Eurozone inflation y/y held at 9.2% but positively m/m inflation dipped slightly. Intraday US Retails sales will be a primary driver to currency markets today. Support holds at 1.0780 while resistance remains at 1.0900

GBPEUR edges higher, extending monthly gains to 0.75% as UK inflation eases and house prices fall. Support holds at 1.1300 (.8850) while resistance remains at 1.1450 (.8733).

GBP tests fresh monthly highs amid a weaker US$ and mixed inflation data. UK inflation falls for second consecutive month primarily driven by weaker oil prices in December, as well UK house prices report first monthly decline since October 2021. UK labor disputes continue as Nurses in England walk out; UK train drivers set to strike again in February taking industrial disruption to 30-year highs. Our view remains bearish on the pound medium-term as underlying growth remains vulnerable from continuing labor disputes. Support resets to 1.2300 while resistance rises to 1.2400.