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Market Wrap
Traders of the Canadian dollar or oil are having a busy day today. Following a slight improvement in UK Services PMI data, the euro caught a bid with better-than-expected German Preliminary CPI readings. CPI rose by 0.7% month-on-month, from -0.2% to 0.5%. According to a preliminary report, Germany’s Consumer Price Index (CPI) rose 5.3% on a yearly basis and 0.5% month-on-month in December. In addition, the Harmonized Index of Consumer Prices (HICP) grew at a rate consistent with expectations, gaining 5.7% annually and 0.3% from November.
Central Asian and Kazakh unrest could have a negative impact on oil supplies. The production of crude oil from the Tengizchevroil (TCO) field in western Kazakhstan was adjusted to 592,000 BPD by Chevron. According to Shell, its operations remain “fully functional”, but the situation is “fluid”. The increase in oil and energy prices caused unrest in Kazakhstan that led to the dissolution of parliament, which then led to the state of emergency and calls for Russia to intervene.
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Today’s Brent chart has pushed above the significant swing high and tripped stops at $82.00. The trend remains very bullish with $86.00 the most logical target next. This is going to keep inflation high and is undoing the work that President Biden had started late last year with the coordinated release of the Strategic Petroleum Reserve’s.
While the US dollar index treads water ahead of the NFP data and the next FOMC meeting, the USDCAD has dropped -0.31% today as the price of energy increases.
The forex heatmap remains largely the same as this morning but with the main difference being the flows into the CAD. The rest of the forex pairs are suggesting a more risk-off tone to the markets, and we have seen the equities largely down today, though the US indices are generally above their opening prices.
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The USDCAD is trading within a balance area around the 1.2700 but had earlier today tested the 1.2800 before the oil led drop. If the US dollar index were to fall the USDCAD could be targeting below the significant swing low and 1.2600 level, which then opens the 1.2400 and potentially a further 200 pips to the downside.
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The UK FTSE 100 was also one of the only indices today to end the session in the green. The decent amount of energy companies within the index will help push the prices higher after a global risk-off slip yesterday.
The news from the US session came from international trade figures from the US and Canada with the latter expanding their surplus and the former showing a larger deficit. The trade deficit between the US and China grew by nearly a $Billion.
US initial jobless claims also increased by 7K, with the previous reading being revised higher as well. At around 207K, the figure was well above expectations. 204,500 is currently the four-week moving average, up by 4,750 from the previous week. If NFP were to come in worse than expected, the markets may start to walk back some of the optimism around early rate hikes.
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The Dow Jones Industrial Average slipped further today following a better-than-expected US Factory Orders data release but a worsening US ISM non-manufacturing PMI for December.
In a report published by the Census Bureau new orders for manufactured goods in the United States rose 1.6% in November to $531.8 billion. Shipment volume increased by $3.5 billion or 0.7% to $527 billion in October. Orders unfulfilled rose for the tenth consecutive month, increasing by 0.7% to $1.26 trillion.
At the same time, we receive a report from the Institute for Supply Management (ISM) which indicated that the services sector activity in the United States slowed in December compared with the previous month. The services PMI decreased by 7.1 percentage points to 62%. Prices paid rose and the business activity index dropped.
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The US dollar barley moved today considering all the news out, so we’re obviously waiting for a catalyst. If it is not NFP tomorrow, it will most likely be the FOMC meeting which is scheduled for the 25th-26th. So, a few weeks away and maybe a prolonged sideways market.
