Wednesday May 11th, 2022

The US$ is lower, oil prices firm, equity markets advance, while US yields fall ahead of the US inflation report. The US$ halted its 4-day rally, US yields are down for a 3rd trading session, while equity markets have firmed underscoring risk-on sentiment is returning amid expectations US inflation has peaked dropping to 8.1% yoy April vs 8.5% in March. A softer inflation read would come as a relief to the Fed, allowing it to continue with 50bps hikes in June and July verses more aggressive suggestions of 75bps hikes. Intraday US CPI will dominate markets. In other news. The US House passes US$ 40 bln bill to bolster Ukraine against the Russian Invasion. Putin preparing for ‘prolonged conflict’ in Ukraine, warns US (FT). Ukraine diverts some Russian gas flows, while Kyiv reported battlefield gains over Russia. Morgan Stanley warns 2022 global growth to be less than half of 2021. The UK rejects the EU proposals to resolve the Northern Ireland trade row. The currency markets. Euro to hit parity against the dollar within six months, Amundi says (FT). CNY firms from 19-month lows on hopes US will remove Trump era tariffs. Commodity currencies AUD, NZD, CAD, NOK rebound as risk-on sentiment returns. CNY firms 0.25%, Asian currencies firm 0.15% on average vs US$. Trading currencies rebound with JPY up 0.5%, while MXN strengthens 0.6%, ZAR & CHF firms 0.7%, and NZD, NOK & AUD rallies 0.9% vs US$.

Oil prices advance after tumbling 10% in the last two sessions buoyed by news of easing covid levels in China, supply concerns as the EU works on gaining support for a Russian oil ban and the flow of Gas from Russia via Ukraine is halted. C$ rebounds from an 18-month low as risk-on sentiment improves with the prospect that US inflation levels have peaked. In early trading Oil prices rebound 3%, equity markets firm and US$ slides heading into the US CPI number helping the C$ rebound as focus will shift to BoC Deputy Governor speech on Thursday. Support holds at 1.2892, while resistance remains at 1.3090 (Nov/20).

Euro advances but remains capped at 1.0600 despite a more hawkish ECB. ECB President Lagarde joins other ECB officials signaling a July rate hike is possible. The combination of hawkish ECB comments and a falling US$ helped the Euro strengthen through 1.0550. CIO of Amundi expects Euro to hit parity vs the US$ within 2022 as the ECB – FED interest policy continues to diverge. Intraday focus will be on the Key US Inflation report which will help driver currency markets. Support holds at 1.0475, while resistance remains at 1.0640.

EURGBP is flat as currencies consolidate ahead of the US Inflation report. Support holds .8485 (1.1785) while resistance remains .8600 (1.1628).

GBP attempts to rally through 1.24 as risk-on sentiment returns. The pound firms on a weakening US$, but the GBP’s strength may be short-lived as domestic growth issues, increasing Brexit tension and rising political uncertainty. A tide of pessimism is sweeping through UK households and suggests the government may have misjudged its response to an escalating cost of living crunch. The UK rejects the EU proposals to resolve the standoff over post-Brexit rules for Northern-Ireland. Intraday expect the pound to continue to be driven by the US$ direction following the US CPI report. Support holds at 1.2275 while Resistance remains at 1.2450.