Risk-off lifts DXY to 2-year peak, GBP pounded to 2020 low

JPY Rallies; AUD, NZD, EMFX Tumble; Yields, Stocks Slump

Summary: What a difference a day makes, 24 solid hours, particularly in the FX markets. After steadying at the start of this week, risk appetite took a turn for the worse as Russia halted its gas exports to Poland and Bulgaria while China risked a lockdown due to a Covid-19 outbreak. The Dollar Index (DXY) which measures the value of the Greenback against a basket of 6 major currencies, soared to two-year highs at 102.36 (101.75 yesterday). Sterling (GBP/USD) was pounded to 1.2570 (1.2715 yesterday), lows not seen since July 2020, finishing as worst performing major. The Euro (EUR/USD) slid to 1.0640 from 1.0685, weighed broad-based US Dollar strength. Against the haven sought Japanese Yen, the US Dollar slumped 0.44% to 127.25 from 128.70 yesterday. The Australian Dollar (AUD/USD) led the Kiwi and Asian/EMFX lower, losing 0.8% to 0.7125 (0.7185). Against the Offshore Chinese Yuan, the Greenback (USD/CNH) rallied to 6.5900 (6.5800). The USD/THB pair soared to 34.30 (33.97), its highest finish since 2017. Global bond yields tumbled while equities slid as investors risk appetite soured. The benchmark US 10-year bond rate was last at 2.72% from 2.90% yesterday. Germany’s 10-year Bund yield lost 16 basis points to 0.81% (0.97%). The UK 10-year Gilt rate was last at 1.79% from 1.96% yesterday. Japan’s 10-year JGB rate dipped to 0.23% (0.24%).

Economic data released yesterday saw US Consumer Confidence in April slip to 107.3 from an upwardly revised March reading at 107.6, but way below economist’s expectations of a 108.2. However, the US House Price Index in February jumped to 2.1% from 1.6%, exceeding economist’s expectations of 1.4%. New Home Sales fell to 763,000 from an upwardly revised 835,000 and missed median forecasts at 774,000.

• EUR/USD – the shared currency fell to 1.0640 from 1.0685 yesterday. Overnight the Euro hit a low at 1.0635 before settling to its New York close. Earlier in the day, the EUR/USD pair traded to 1.0738 highs. The Ukraine crisis continued to weigh on the shared currency despite soaring inflation in Europe.

(Source: Finlogix.com)

• USD/JPY – risk aversion saw a big turnaround in the Dollar against the Japanese Yen in the past two trading days. After climbing to 129.40 last week after the US 10-year bond yield hit 2.94%, the USD/JPY slid to 127.02 lows overnight before rallying to settle at 127.25. The Bank of Japan is expected to maintain its ultra-soft monetary policy at its interest rate meeting tomorrow.
• AUD/USD – the risk-leading Aussie Dollar tumbled 0.8% to 0.7125 from 0.7185 yesterday. Overnight, the Aussie Battler soared to an overnight high at 0.7229 before it took plunge lower. Traders will be looking to the release of Australia’s Q1 CPI later today which is forecast to rise to 1.7% from 1.3%.
• GBP/USD – slip-sliding away, Sterling was pounded lower on the combination of broad-based US Dollar strength and risk-off. In early Asian trade, the GBP/USD pair fell to a low at 1.2559 before rebounding to its current 1.2885 level in choppy trade. The British Pound saw an overnight high at 1.2772.

On the Lookout: The Easter period did not disappoint as FX volatility climbed while markets switched into risk off mode. The VIX Volatility Index soared 24.06% to 33.52, its highest since early March. Today sees the release of more crucial economic data. Australia kicks off with its Q1 2022 CPI report which is expected to climb to 1.7% from the previous quarter’s rise of 1.3%. The trimmed mean CPI, which is what the RBA monitors, is forecast to rise to 1.2% from 1.0%. Any rise higher than what is forecast could see more choppy moves in the Aussie Dollar. Germany starts off Europe with its GFK Consumer Climate report (f/c -16 from -15.5 – ACY Finlogix). France follows with its Consumer Confidence for April (f/c 92 from previous 91 – ACY Finlogix). The UK follows with its CBI Realised Sales (f/c -3 from a previous 9 – ACY Finlogix). Canada starts off North American data with its March ADP Employment Change (no f/c, previous was 475,000). The US rounds up today’s data releases with its Advance Wholesale Inventories for March (f/c 1.5% from 2.5% - Forex Factory), US March Goods Trade Balance (Deficit of -USD 105.0 billion from -USD 106.6 billion) and US March Pending Home Sales (m/m f/c -1.6% from -4.1%; y/y no f/c, previous was -5.4% - ACY Finlogix).

Trading Perspective: The switch to risk-off stance saw continued flow into the Greenback in volatile conditions. Expect more of this in Asia today as Russia’s conflict with Ukraine threatens NATO involvement. All eyes will also be on China after Beijing reported fresh Covid-19 infections from its population of 21 million people. Beijing officials yesterday called for a testing drive to try and avert a lockdown. Meanwhile, US Consumer Confidence slumped in April falling rapidly from an upward revised March number. While the Dollar Index (DXY) gained from its safe-haven status, expect more choppy sideways trading from current levels. In the current environment, the standout remains the Japanese Yen. Risk currencies will continue to fall, with the Aussie Dollar leading the way lower. Despite this ongoing trend, this is the FX market where things can change. And the one constant remains volatility.

• EUR/USD – After breaking down through the 1.07 support, the Euro remains heavy even at its current levels. Overnight low traded was at 1.0635 which is also the lows in early Asia. Expect immediate support at this level (1.0635). The next support level comes in at 1.0605. A clean break of 1.0600 will see 1.0500 early 2017 lows tested. Immediate resistance can be found at 1.0670, 1.0700 and 1.0740. Inasmuch as the Euro feels heavy at current levels, would be wary of pushing it much lower just yet. Likely range 1.0610-1.0710. Prefer to buy dips toward 1.0600.
• AUD/USD – The Aussie Battler was pummelled lower on risk-off stance after it held ground earlier this week supported by higher commodity prices. Overnight most resource commodity prices eased. Copper lost 0.5%. Overnight, the AUD/USD pair traded to a low at 0.7117 before settling at 0.7125 (0.7185 yesterday). For today, immediate support lies at 0.7115 followed by 0.7095. On the topside, immediate resistance is found at 0.7150, 0.7180 and 0.7210. Look for further choppy trade in this currency pair, likely range 0.7110-0.7210. At current levels, prefer to buy dips.
• GBP/USD – The British currency has that sinking feeling once again. Overnight, traders pounded the GBP/USD pair to an overnight low at 1.2570 while early Asia saw further selling push Sterling to 1.2559 before settling at its current 1.2573. Immediate support today lies at 1.2570 followed by 1.2540 and 1.2510. On the topside, immediate resistance can be found at 1.2610, 1.2640 and 1.2680. A break back above 1.2680 will see 1.2770. Look for more volatile trade in this currency pair, likely between 1.2560-1.2710. Preference is to buy dips.
• USD/JPY – The Greenback eased against the haven sought Japanese Yen to 127.25 from 127.75 yesterday. Overnight low traded for this currency pair was at 127.02. Immediate support is found at 127.00 today. The next support level lies at 126.70. Immediate resistance lies at 127.50, 127.80 and 128.10. Look for a likely range trade today between 127.10-128.10. Just trade the range shag on this one today.

Tin helmets on, we are in for some choppy trading ahead. Have a good Wednesday. Happy trading all.