A Little Calmer Today; Energy Prices Look To Remain High
USD - US Dollar
Equity futures seem a little more supported today as the markets hope that some kind of ceasefire can emerge in Ukraine. Fanning those hopes seem to be comments from President Zelenskiy that Ukraine no longer seeks NATO membership. At the same time, it seems that Russia may no longer be seeking regime change in Kyiv. This seems to be building expectations that some kind of deal can be achieved when Ukraine and Russian foreign ministers meet in Turkey tomorrow. Even if a deal were thankfully achieved, what is clear is that sanctions against Russia would not be reversed immediately and that Putin's war in Ukraine has accelerated the West's transition away from Russian energy supplies. The big news yesterday was the US and UK banning Russian fossil fuel imports, while the EU announced a plan to wean itself off Russian natural gas supplies. Naturally, fossil fuel prices remain elevated and there are even suggestions that more coal can be burnt in the process.
Suffering less of a growth shock than Europe, the US focus will remain on inflation. Tomorrow sees the release of US February CPI - potentially near 8%. Expectations for the Federal Reserve tightening cycle have remained quite robust and we would continue to back the dollar over coming months, where not only energy independence and liquidity support it - but also widening interest rate differentials.
🇺🇸 US Economic Calendar Update:
US Economic Event Name
US JOLTS Job Openings for January
US EIA Crude Oil Stocks Change March 4
CAD - Canadian Dollar
CAD continues to weaken even though Oil was trading higher once again with the USD/CAD trading at 1.2900, before finally finding some resistance. Strong gains in crude, a neutral-looking USD and improved risk appetite should combine to drive gains for the CAD but this has not materialized. We remain bullish on the CAD outlook with gains in the longer term but expect continued CAD weakness in the immediate future given the conflict in Ukraine.
Canadian Dollar Snap Shot taken at 9:46 am est.
EUR - Euro
What is notable this week in all the headline craziness is the euro FX are trading in a much more stable fashion than last week. The growth shock associated with a protracted conflict will hurt everyone ultimately, albeit more so the Eurozone, there may be some repatriation flows and there are small noises around some room for negotiation. What clearly won’t change anytime soon is the economic fallout from this crisis and the repercussions are well publicized, so it’s hard to see any protracted moves beyond short term positioning adjustments and the positivity around commodity currencies should persist at the expense of others. Euro for the first time in a few sessions feels a little more vulnerable to the topside with a possible move toward 1.10.
GBP - British Pound
High energy prices are increasing the risks that the UK goes into a technical recession in the third and fourth quarters of this year. While these fears may be negative for GBP over the longer term, a hawkish Bank of England will probably keep GBP bid. GBP/USD is clinging onto support above 1.3100, but failure to move through the 1.3150/3180 area leaves it vulnerable to 1.2850 on renewed dollar strength.
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