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Market Wrap
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The US dollar continues to push higher into the previous balance zone, as US 10-year yields recover some of today’s losses as it rejected the 1.80% earlier. The appreciating greenback is weighing heavy on the other crosses and in particular the NZDUSD. The EURUSD is trading below yesterday’s low after a decent German ifo Business climate report as the prospect of the West/NATO and Russia going to war over the Ukraine increases.
The forex heatmap shows a market in balance today with no real risk-on or risk-off direction. Flows into the GBP, USD and yen are being cancelled by flows out of the Swiss franc and Kiwi.
There was some US based news out this afternoon with the focus on the final report by the University of Michigan released today showing that the Consumer Sentiment Index in the US decreased 2.5% monthly in January and came in at 68.8. It declined 12.9% from January 2021. Consumer Expectations dropped 3.5% monthly and 10.9% over the last year, while the Current Economic Conditions Index fell 1.3% monthly and was down 15.6% annually.
The Federal Reserve Bank of Richmond also reported that manufacturing activity in the Fifth District weakened somewhat in January. A decline in new orders and employment resulted in a fall in the composite index from 16 to 8 in January. In January, shipments made up the third component in the composite index, increasing from 12 in December to 14. The backlog of orders index dropped considerably in January, while the index for vendor lead time remained high and inventories indexes remained near historic lows. Firms expect wages to continue increasing, with the expected wage index remaining firmly in expansionary territory.
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The USDCAD has risen and traded through the old support and is finding resistance at the 1.2700 level. Brent continues to find support from the $85/$86 zone and is flirting with the $87 level, which should cap any further increases in the USDCAD unless the US dollar should go higher to test the $97.00.
The United States has stated that it is ready to apply “potent” sanctions and export controls on sensitive sectors of the Russian economy should it invade Ukraine. It would be economically damaging for Russia to not only invade and have sanctions applied but also to cut energy flows to Europe. Mainly because the Russian economy relies on energy exports.
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With geopolitical tensions rising as fast as the inflation gold is becoming more of a safe-haven play. Today’s breakout above $1850 was expected and now we just have to sit and wait for support to be confirmed. The trend is higher whilst the intraday price action is forming higher swing highs and higher swing lows, but also whilst the daily candles are printing consecutive higher highs and higher lows.
