USD/JPY Rockets to Fresh 20-Year Highs; Benchmark Bond Yield Soars

Michael Moran, Senior Currency Strategist at ACY

20.04.2022 09:45 am

#socks

Bullard Says He is “Open” to 0.75 % Hike; EUR/USD Holds Its Lows

Summary: The benchmark US 10-Year Treasury Bond Yield jumped 9 basis points to 2.94%, its highest level since March 2019. James Bullard, St Louis Fed President, said he was open to discussing a 75-basis point rate rise in the event inflation further spirals out of control. The last time the US Bullard pushed for a 50 bp hike in February this year. The last time the US central bank raised rates 0.75% was in 1994. A favourite gauge of the Greenback’s value against a basket of 6 major currencies extended its rally climbing 0.19% to 100.97 (100.85 yesterday). Against the yield sensitive Japanese Yen, the US Dollar rocketed to 129.415 from 127.15 yesterday, its highest level since February 2002. Verbal intervention efforts from Bank of Japan Governor Kuroda and Minister of Finance Suzuki to support the Japanese currency came on deaf ears. In contrast to the US Federal Reserve, the Bank of Japan has maintained its ultra-loose accommodative policy. The Euro (EUR/USD) halted its slide at 1.0761 overnight lows, rebounding to finish at 1.0788 (1.0777 yesterday). Sterling (GBP/USD) edged lower to 1.3000 from 1.3007. The US Dollar rallied against the low-yielding Swiss Franc to 0.9522 (0.9447), up 0.78%. A slide in Oil prices lifted the Greenback against the Canadian Loonie (USD/CAD) to 1.2618 from 1.2608. The Australian Dollar (AUD/USD) failed to clear 0.74 cents, settling at 0.7375 (0.7355 yesterday). This was after the RBA’s meeting minutes revealed that a move in the cash rate in June rather than in May was strengthened. Against the Japanese Yen though, the Australian Dollar cross rate (AUD/JPY) traded to a 7-year peak at 95.68 in early Asian trade, before settling at 95.50 (93.55 yesterday). The Dollar finished with strong gains versus the Asian and Emerging Market currencies. USD/SGD jumped to 1.3680 from 1.3620 while USD/THB (US Dollar-Thai Baht) rose to 33.80 from 33.67 yesterday. Against the Offshore Chinese Yuan, the Greenback (USD/CNH) advanced to 6.4200 from 6.3810. Other global bond rates rose. Germany’s 10-year Bund yield was last at 0.91% (0.84%. The UK 10-year Gilt rate climbed 8 basis points to 1.97%. Japan’s 10-year JGB yield was unchanged at 0.24%.
Wall Street stocks edged higher at the close. The DOW finished at 34,887 (34,510) while the S&P 500 was up 0.9% to 4,447 (4,407). Brent Oil slid 5% to USD 107.40 from USD 112.85).
Data released yesterday saw Japan’s Revised Industrial Production climb to 2.0% from a previous 0.1%, beating estimates at 0.1%. Canada’s Housing Starts fell to 246,000 from an upward revised 250,000 and lower than expectations at 249,000. US March Building Permits climbed to 1.87 million, beating forecasts at 1.83 million and a previous 1.86 million.

USD/JPY – Against the Japanese Yen, the US Dollar rocketed to an early Asian high this morning at 129.42 before easing to settle at 129.15 in volatile trade. The rally in the benchmark US 10-year bond yield boosted USD/JPY. Yesterday, the USD/JPY pair opened at 127.15. An increasingly hawkish Federal Reserve contrasted with the ever-accommodative Bank of Japan.
EUR/USD – The shared currency stabilised after reversing its fall, closing at 1.0788 from 1.0777 yesterday. Overnight, the Euro was pushed to a low at 1.0761 before rebounding. The overnight high recorded was at 1.0814.
AUD/USD – The Australian Dollar edged higher to 0.7375 in late New York traded after hitting a low at 0.7345 on broad-based US Dollar strength. Overnight the Aussie Battler soared to a high at 0.7400 cents before easing after the RBA’s meeting minutes revealed officials saw a rate hike more likely in June rather than in May.
GBP/USD – The British currency was marginally lower against the US Dollar to 1.3000 from yesterday’s open at 1.3007. Overnight, the GBP/USD pair traded to a low at 1.2981 while the overnight high recorded was at 1.3041. There were no major data releases out of the UK.

On the Lookout: Expect a choppy start to the FX markets in Asia today following the long Easter weekend holidays. Data releases today kick off with Japan’s Trade balance for March (deficit forecast at -JPY 100.8 billion vs a previous -JPY 668.3 billion – ACY Finlogix). China releases its Loan Prime Rate for April (5 Year no f/c, previous was 46%; 1 Year no f/c, previous was 3.7%). Japan releases its Tertiary Industry Index for February (m/m no f/c, previous was -0.7%). Germany kicks off European data with its March PPPI (y/y f/c 28.2% from 25.9%; m/m f/c 2.6% from 1.4% - ACY Finlogix); the Eurozone releases its February Industrial Production (m/m f/c 0.7% from 0%; y/y f/c 1.5% from -1.3%), Eurozone Trade Balance for February (f/c -EUR 6.5 billion from -EUR 7.7 billion – Forex Factory). Canada follows next with its March CPI (m/m f/c 1.0% from 1.0% - ACY Finlogix), Canadian March CPI (y/y f/c 6.1% from 5.7%), Canadian March Core CPI (y/y f/c 4.2% from previous 4.8% - ACY Finlogix). The US rounds up today’s data releases with its March Existing Home Sales (m/m f/c 5.8 million from 6.02 million – ACY Finlogix).

Trading Perspective: Once again, its all about yields with the meteoric rise in the benchmark US 10-year climbing 9 basis points to 2.94%, its highest level since January 2019. Which enabled the USD/JPY pair to rocket to fresh 20-year highs to 129.42 earlier this morning. Verbal intervention efforts from Japanese officials were ignored with traders continuing to push the Japanese currency lower against the US Dollar and its other rivals. That said, expect more verbal intervention efforts from Japan Inc today.
Economic data releases this week have been minor following the long Easter weekend. Traders will be looking at a gathering of central bank leaders on Thursday in Washington DC for the Spring meetings of the International Monetary Fund (IMF) and World Bank. Given the recent moves in FX, which have favoured the US Dollar, traders and investors will watching what they have to say closely. Net speculative US Dollar long bets continued to grow even as risks of a reversal increase. Market positioning thus becomes a factor as these positions are overstretched.

USD/JPY – As the Greenback continues to climb against the hapless Japanese currency, expect the rhetoric from Japan Inc. to pick up. Earlier this morning in Asia, the USD/JPY hit a high at 129.42 from its close at 128.88 before easing back to its current 129.15 in choppy trade. Immediate resistance for today is found at 129.40 followed by 129.70 and 130.00. Immediate support can be found at 129.10, 128.70 and 128.40. Expect more volatile trade in this currency pair, likely range 127.70-129.70. Watch for Japan Inc, they will be vigilant, defending any further rises above 130.00.

(Source: Finlogix.com)

EUR/USD – The battered Euro found some respite as traders turned their sights on the Japanese currency. The shared currency settled at 1.0788 from 1.0777 yesterday. Overnight low traded was at 1.0761. This puts immediate support at 1.0760. The next support level lies at 1.0730. On the topside, immediate resistance lies at 1.0810, 1.0840, and 1.0870. Look for the Euro to consolidate in a likely range today of 1.0760-1.0860. Trade the range.
AUD/USD – The Aussie Dollar held its ground against the Greenback and other currencies. Against the Japanese Yen, the Aussie Dollar rallied to 7-year peak. With the RBA looking to hike rates soon, the Aussie Battler will remain supported. Overnight low traded was at 0.7345 which is today immediate support level. The next support level lies at 0.7310. Immediate resistance on the day lies at 0.7400 followed by 0.7430. Look for a likely trading range today of 0.7340-0.7440. Preference is to buy dips, as a few speculative short bets remain, and need to be cleared.
GBP/USD – Sterling was little changed, finishing at 1.3000 from 1.3007 yesterday. Overnight low traded was at 1.2981 which puts today’s immediate support at 1.2980. The next support level is found at 1.2950. Immediate resistance can be found at 1.3040 (overnight high traded was 1.3041). The next resistance level lies at 1.3070. Look for the GBP/USD pair to trade a likely range today of 1.2970-1.3070. Just trade the range shag on this puppy today.

Have a good Wednesday ahead all. Happy trading.

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