Wednesday March 9th, 2022

The US$ & oil prices dip, equity markets and US yields firm as risk-on sentiment cautiously return. Late Tuesday Ukraine President Zelensky said he is no longer pressing for NATO membership and said he was open to ‘compromise’ on the status of two breakaway pro-Russian territories. The headlines don’t point to the end of the crisis, but investors seem to have turned slightly optimistic, the US$ index fell for a 2nd day, currency and equity markets rebounded in the European trading session. Intraday markets will look for Ukraine/Russian update, US Jolts Jobs opening ahead of Thursdays key Ukraine/Russian peace talks in Turkey, US inflation report, US Initial Jobless claims, and ECB Interest rate decision. In other news. The UK joined the US and bans Russian oil imports, but the ban won’t apply to natural gas. UNHCR head estimates up to 2.2 million people have now fled Ukraine. The US Congress reaches agreement for Ukraine aid, government fund bill. Russian bond default ‘imminent’, warns Fitch as more companies suspect operations (The Guardian). President Biden orders government to study digital dollar, other cryptocurrency risk (Reuters). In the currency markets. Russian RUB down 7.9%, Turkish Lira down 1%, while the US$ index drops for a 2nd as safe-haven currency buying eases. CNY is flat, while Asian currencies firm 0.25% on average vs US$. Trading currencies are mixed with JPY extending losses down 0.2%, while CHF up 0.2%, NZD, NOK, ZAR & MXN firm 0.65%, and AUD strengthens 0.8% vs US$.

Oil prices ease from their highs but remain supported on dips after the UK & US ban Russian oil imports, the Iran nuclear deal remains uncertain, and supply is tight as OPEC keeps to its production levels. C$ and commodity prices remain volatile as markets continue to respond to Ukraine related headlines. Domestically Canada posted a C$2.6bn trade surplus, commodity prices remain at decade high prices, the loonie rebounded from its 6-week lows after Ukraine’s comments on NATO membership which prompted cautious increase in risk sentiment. Our bias remains for a stronger C$ in the medium term and continue to favour selling US$ on rallies. Support holds at 1.2750, if breached look for 1.2635 next while resistance holds at 1.2880.

Euro spikes towards 1.10 as risk-on mood cautiously returns to currency markets. Optimistic comments from Ukraine’s President ahead of Thursday’s peace talks in Turkey gave confidence to investors and a return to Euro ahead of Thursday ECB’s meeting/US CPI report. We expect the ECB to keep rates on hold and we expect the ECB to take a cautious tone with the ongoing Ukraine crisis. Our bias is that the Euro will struggle to maintain its bullish momentum and will likely remain under pressure from its peers as interest rate divergence will take a toll on the single currency. Support rises to 1.0900, while resistance shifts to 1.0995.

EURGBP rebounds on rising risk-on sentiment. Focus shifts to Thursday’s US CPI – ECB Rate Decision & the Key Ukraine/Russian peace talks. Support resets at .8250 (1.2120) while resistance rises to .8365 (1.1954)

GBP rallies in early trading as risk-sentiment rises. The UK government announced it would ban Russian oil imports but doesn’t ban natural gas imports. Markets are focusing on BoE Junes rate decision as traders are pricing in a 50bp’s hike in at June’s meeting to contain surging UK inflation levels. Intraday risk perception remains the markets primary driver and, on that basis, we could see a retest of 1.3200 ahead of the Ukraine/Russian peace talks in Turkey tomorrow. Support resets to 1.3090 while Resistance holds at 1.3190.