Wednesday July 6th, 2022

The US$ steadies, oil prices firm, equity markets are up, and US yields are mixed as recession fears linger. Currency and equity markets remain volatile amid concern over a global economic slowdown. The renewed spike in China’s covid cases and a worsening gas crisis in Europe increases concerns of recessionary pressures, while Bloomberg economics set the odds of a US recession at 38% in 2023. Today the US FOMC minutes alongside US Services PMI, US Jolts Jobs & BoE Cunliffe speech will help provide intraday direction to the markets. In other news. The UK Government rocked by the resignations of Chancellor Sunak & Health Secretary Javid. The Copper price crash deepens as recession fears dominate metals trading. China battles covid cluster in Shanghai among other outbreaks, while Macau locks down landmark Lisboa hotel after covid cases found. Norway’s government halts oil and gas strike easing fears over security of supply for the UK & Europe. Russia takes steps towards mobilizing economy for war; air alerts cover almost the whole of Ukraine (CNBC). The currency markets. Euro hits fresh 20-year lows vs US$ – GBP hits 2-year lows as UK PM’s future looks fragile – Commodity currencies remain under selling pressure as recession fears mount. CNY firms 0.25% while Asian currencies are down 0.2% on average vs US$. Trading currencies are mixed with NOK slips 0.2%, CHF down 0.25%, MXN weakens 0.85%, ZAR tumbles 1.2%, while AUD & NZD are flat, and JPY firms 0.4% vs US$.

Oil prices rebound as markets balance recession fears, reports of increased covid cases in China, while supply concerns linger supporting oil prices. C$ bounces off 20-month lows as oil prices rebound from yesterday’s 8% rout and the US$ steadies ahead of the FOMC minutes. Recession fears are growing which is putting pressure on commodity prices and in turn keeping pressure on the C$. Focus will be on Friday’s CAD unemployment report for June which will help guide expectations for a possible 0.75% interest rate hike by the BoC next week. Support resets to 1.2970 resistance rises 1.3085.

Euro tests fresh 2-decade lows as recession fears mount. Euro continues under selling pressure breaking through 1.0200 vs US$ after EU retail sales fell below expectations. Intraday all focus shifts to the US FOMC minutes which are expected to be hawkish and likely highlighting the inflation threat. Expect Euro to remain under selling pressure with the potential of seeing parity possibly in July. Support resets to 1.0160 while resistance lowers to 1.0250.

EURGBP selling pressure continues despite the UK PM fighting to remain in power as key ministers continue to resign. Support holds at .8540 (1.1709) while resistance remains at .8680 (1.1520).

GBP steadies near 2-month lows as UK PM clings to power. PM Johnson is facing tough questions in the house after several key ministers resign including the Chancellor and the Health Minister. Markets have somewhat written off PM Johnson, but concerns remain as there is no clear frontrunner to replace him and its uncertain what this will mean the conservative policy. The BoE warned on Tuesday that the economic outlook for the UK and world has worsened, but the BoE is still likely to opt for 50bps interest rate hike at its next meeting. Today the FOMC Minutes and US PMI will dictate intraday direction. Support rests to 1.1870 while resistance lowers to 1.1970.