Wednesday January 19th, 2022

The US$ dips, oil prices extend gains, equity markets and US yields are up as risk-on sentiment improves moderately. The US$ eases in early trading as risk-on sentiment improved despite 10-year treasury yields hitting 2-year high and continuing geo-political concerns. Intraday focus will be on President Biden’s speech, BoE’s Governor’s speech and US Housing starts which will help provide direction to the currency markets. In other news. UK inflation hits near 30-year high putting pressure on the BoE to raise rates again. The US to meet Russia to defuse the Ukraine crisis, while Germany signals it could halt gas pipeline if Russia invades. The UK PM faces growing pressure to resign with Tory rebels claiming to be on the verge of forcing a vote on the PM’s future. Covid. The US to distribute 400 million free N95 masks. Brazil reports record daily covid cases as Omicron spreads. Bulgaria posts a record of +11k daily covid cases. The UK is betting Omicron has peaked and England is set to lift covid rules. In currency markets. GBP firms on BoE rate hike expectations, RUB rebounds from 2-week lows & petro-currencies rally as Brent crude tests US$ 88pb. CNY firms 0.1%, while Asian currencies firm is flat on average. Trading currencies rebound with JPY, MXN & CHF up 0.2%, while NOK, AUD & NZD firm 0.35%, and ZAR rallies 1% vs US$.

Oil prices extend gains hitting their highest levels since 2014 as Turkey outages adds to the already tight supply conditions. The IEA commented today that while demand holds, they see significant supply surplus materializing in Q1/22 and going forward. C$ extends gains as oil prices continue to rally and as the US$ weakens. Intraday the focus will be on BoC CPI which will set the stage for Jan 26th BoC interest rate announcement and monetary policy report. Our bias remains for C$ stronger with the prospect of firm oil prices and the potential of a BoC as soon as next week. Support holds at 1.2453, if breached look for a test of 1.2383 (Nov 10th) while resistance resets to 1.2535.

Euro recovers modestly off 1.1320 lows ahead of US Data. Risk-on sentiment improves adding some pressure on the US$ and helping the Euro bounce off its weekly lows. In Germany 10-year Bond yields trades in positive territory for the first time since May 2019. The ECB’s ongoing static rate policy will continue to keep the Euro under pressure vs its peers. Support resets to 1.1320, while resistance lowers to 1.1400.

EURGBP come under fresh selling pressure as the UK posts 30-year high inflation levels and raises the prosect of a 2nd BoE rate hike as soon as Feb. Support holds .8280 (1.2077) while resistance remains at .8400 (1.1905)

GBP breaches 1.36 vs US$ and retests 23-month highs vs Euro. The pound moves into positive territory after the UK inflation levels hit 30-year highs, raising the prospect that the BoE will raise interest rates for a 2nd time in as many months. The UK PM remains under pressure over “party-gate” with increasing calls for him to resign. The PM continues to fight to keep his job and is rolling out several socially positive steps with the potential cancelling of the BBC license fees and loosening covid restrictions. Focus will be on the BoE governor’s speech today. Support holds at 1.3560 while resistance remains at 1.3640.