Wednesday June 1st, 2022

The US$ firms, oil prices extend gains, equity markets mixed, while US yields rise as the market mood remains cautious. Equity markets struggle for direction, US yields continue to edge higher helping the US$ snap a 3-day losing streak amid uncertainty over the scale of central bank monetary policy tightening needed to fight inflation. Intraday OPEC+ 2-day meeting starts, CAD BoC Interest rate decision, US Manufacturing PMI, a flurry of Fed & ECB speakers, US Jolts Job Openings and the Fed Beige book will all be in focus today. In other news. The UK & EU hit Russian oil cargoes with insurance ban. Asia’s factory output slowed in May as covid lockdowns caused China’s private PMI to contract for a 3rd month, while Japan’s factory activity grows at its slowest pace in 3-months. Russian forces advance in the factory city of Sievierodonetsk, while the US is set to send precision rockets to Ukraine. Treasury Secretary Yellen in an interview with CNN said, “I think I was wrong then about the path that inflation would take’. The currency markets. The US$ index rebounds hitting a 2-week high vs JPY, commodity currencies AUD, NZD & CAD hold steady while GBP, EUR & CNY ease on safe-haven selling pressure. CNY weakens 0.2%, while Asian currencies are down 0.1% on average US$ and Sri Lanka Rupee has tumbled 78% vs US$ in last 3-months. Trading currencies are mixed with JPY down 0.5%, CHF eases 0.25%, MXN dips 0.1%, while NZD is up 0.05%, NOK firms 0.15%, AUD firms 0.3% and ZAR rallies 0.65% vs US$.

Oil prices continue to edge higher on the EU’s Russian oil ban and expected increasing demand with the ending of Shanghai’s lockdowns. OPEC+ comes back into focus as it starts two-days of meetings, with some Gulf members reported to be planning an output increase in the next few months. C$ posted its biggest monthly gain in 7-months and holds steady near its 6-week highs as it heads into an expected BoC ½% interest rate hike today. The BoC statement is expected to remain hawkish with above target inflation levels and strong domestic growth supporting further BoC rate increases. Support (minor) at 1.2625, if breached look for (major) at 1.2565 (22April) next while resistance holds at 1.2735.

Euro holds below 1.0750 on mixed data and a strengthening US$. A mixed set of economic data today with German retail sales down, Swiss & Italian Manufacturing PMI were weaker, while France & Spain Manufacturing PMI beat expectations and EU Unemployment held steady at 6.8% missing expected improvements. Focus shifts to ECB speakers after ECB Holzmann told Bloomberg today that a 50bps rate hike would show that the ECB is serious about fighting inflation. Intraday US data releases will be the primary driver of currency direction today. Support lowers to 1.0670, while resistance resets to 1.0780.

EURGBP slips as the pound was sidelined on neutral economic data and Euro edges lower on mixed economic data. Medium term bias favours Eur vs GBP. Support holds at .8470 (1.1806) while resistance remains at .8600 (1.1628).

GBP struggles to hold on to 1.26 level ahead of US$ and domestic headwinds. Ongoing UK political concerns, weakening economic growth, surging energy costs, Brexit deadlock and BoE’s dilemma of growth over inflation. Intraday US data releases will be the driver for the pound’s direction today, with many investors turning more bearish on the pounds medium term direction. The pound is down 6.9% YTD, break of 1.2560 opens the door for retest of 1.2436 with 1.2154 (May-13th 2-year low) the key level. Support holds at 1.2560, while resistance lowers to 1.2650.