Today's FX Comment

December 22, 2022?

Good morning. Christmas came early for Pascal Siakam who scored a career high 52 points for the Raptors last night as they broke their losing streak by beating the Knicks. Now if only a little bit of that Christmas cheer could rub off on equities and help with a small late year Santa Claus rally.....?

?It sure does feel like the market is in holiday mode with volumes definitely on the lighter side.?

The stories remain the same for the most part. In Asia, China continues its reopening as it seems the term "dynamic zero covid" has disappeared. Enthusiasm for the reopening is being tempered by concerns around reports of overflowing hospitals (not officially being reported) and thoughts of more covid variants potentially springing up. For the most part Asian indices were higher overnight.?

European indices are mostly lower this morning but losses have been fairly limited. Putin's reaction to Ukraine President Zelensky's speech before congress has been relatively tame. Maybe that's because not a lot is going as Putin had planned. The 10 day special operation has stretched to 10 months, Russian soldiers don't want to be fighting, Russian ammunition is running low, Europe is not backing down and Ukraine will likely have the Patriot missiles it wants from the U.S. One word: miscalculation. Europe is also being helped by lower natural gas prices today.?

Equity futures point to small losses on the open, US yields are a little bit lower and the Big Dollar is mixed to start the day. It doesn't feel like there is a big underlying theme here, more likely at this point in the year you do what you have to get done and get ready for the holidays.?

?FX thoughts: No big change in thinking I think the ECB and BOJ are sounding a lot more hawkish and that will lead to further strength in Yen and Euro putting broader pressure on the US Dollar.?

?JPY - We have Japanese CPI tonight and it is expected to hit 3.9% its highest level since 1991. We also have the BOJ minutes which may shed more light on the central bank's thinking. I would expect to see more hawkishness as we get closer to the end of Governor Kuroda's term. This week's move is likely just the first step. Keep selling rallies here. I would target a move to 126.20 initially with 130-103.50 decent support on the way down. 132.90 is the sell zone.?

AUD - It will no doubt be a difficult winter for China as they reopen but ultimately that reopening will boost the Chinese economy which in turn should boost the Oz. Keep buying dips here. .6640 supports, .6900 is the big topside level.?

GBP - UK final GDP was worse than expected this morning (no surprise really?) and the Pound continues to slide. Brexit and more limited access to the EU market, a central bank that has a spotty inflation fighting record, a government that is tightening the fiscal belt, high energy prices, falling home prices and massive strikes set to go off across various industries in the coming weeks. It is hard to see a silver lining here. I think you sell rallies/look at GBP Put spreads or stay long EURGBP. 1.2275-95 is back to being very good resistance in Cable.?

EUR - It is like the ECB has finally realized inflation is an issue and after being months late to the party they are now sounding more and more hawkish. The ECB may be stepping up just when the Fed is stepping down. I think the market will buy keep buying dips here. 1.0530 supports.?

?CAD - The Canadian Dollar should be stronger. Over the last two weeks, WTI has moved from $70 to almost $80 this morning, the Western Select spread has tightened just a tiny bit, CAD/US two year yield spreads have moved about 10bps in CAD's favour while yesterday’s CPI data keeps another BOC rate hike in play (although I personally think they are done). I think the currency may be suffering from a lack of interest at the moment but certainly 1.3700 has become a very good top and the favoured play might be selling a bounce between 1.3650-1.3700. Support 1.3570 and 1.3520. ?

?Good luck. ?