• Michael Moran, Senior Currency Strategist at ACY


• 21.03.2022 11:00 am
#stocks

Stocks Rally, Risk-On; Week Ahead: Central Bank Speak

Summary: The theme of weaker European FX against stronger Australasian and US currencies continued over the weekend. In all this, the DXY, a favoured gauge of the Greenback’s value against a basket of 6 major currencies, edged 0.26% higher to 98.23 (97.98 Friday). The Australian Dollar (AUD/USD) outperformed, extending its gains to finish 0.43% up at 0.7415 from 0.7377 on Friday. After several days of rallying, the Euro (EUR/USD) retreated, falling back to 1.1052 (1.1097). Hopes over a peace agreement on Friday surrounding the conflict between Ukraine and Russia faded, with little to no progress reported. Sterling (GBP/USD) however, grinded higher to 1.3178 from 1.3152. The US Dollar rallied against the Japanese Yen, finishing at 119.15 (118.62) despite a fall in US bond yields. On Friday, the Bank of Japan kept its Policy Rate unchanged at -0.10% as expected. BOJ Governor Haruhiko Kuroda said it was too early to discuss an exit to easy money policy. Against the Asian and Emerging Market currencies, the US Dollar was mostly higher. USD/CNH (US Dollar – Offshore Chinese Yuan) was last at 6.3670 (6.3640) while the USD/SGD (US Dollar-Singapore Dollar) pair closed at 1.3565 (1.3535 Friday). A rise in risk appetite lifted equities while bond yields eased. At the close of trade on Friday, the DOW was up 1.23% to 34,760 (34,427) while the S&P 500 closed at 4,467 (4,407 Friday), gaining 1.74%. Global bond yields were mostly lower. The benchmark US 10-year treasury note rate was last at 2.15% (2.19% Friday). Germany’s 10-year Bund yield dipped to 0.37% from 0.38%.
Economic data released on Friday saw Japan’s National Core Annual CPI climb 0.6%, matching economist’s expectations. The Eurozone Trade Deficit fell to -EUR 7.7 billion from a previous deficit of -EUR 9.7 billion, and median forecasts at -EUR 9.1 billion. Canada’s Retail Sales in January (m/m) climbed to 3.2%, beating expectations at 2.4%. Canada’s Core Retail Sales in January was also higher, at 2.5% against forecasts at 2.4%. US February Existing Home Sales slumped to 6.02 million from a previous 6.5 million, lower than median estimates at 6.10 million. The US Conference Board Leading Indicator matched estimates at 0.3%.

• EUR/USD – the Euro retreated against the Greenback to finish at 1.1052 on Friday from its opening at 1.1097. Overnight, the EUR/USD pair rallied to a high of 1.1119 before easing to its New York close. The Euro began last week at 1.0925. Short covering boosted EUR/USD.
• AUD/USD – the Australian Dollar continued its outperformance against the Greenback and other FX. On Friday, the Australian Dollar closed at 0.7415 (0.7377), gaining 0.43%. Australia’s proximity from the Ukraine conflict and strong metals supported the Battler.
• USD/JPY – despite an easing in the 10-year US bond yield by 4 basis points, the Greenback stayed firm against its Japanese counterpart. Bank of Japan officials led by Governor Kuroda reiterated that they would continue to pursue an easy monetary policy with any exit too premature for discussion.
• GBP/USD – Sterling settled higher against the Greenback to 1.3178 from 1.3152 Friday. Trading was choppy but featureless on the British currency. Overnight high traded was at 1.3197. On the downside, the overnight low was at 1.3111. GBP/USD saw a high last week at 1.3211 after the Bank of England lifted rates by a cautious 0.25% on Thursday.

On the Lookout: Asia will see a tentative start today with Japanese markets out celebrating a bank holiday (Vernal Equinox Day). New Zealand kicked off earlier with its Trade Balance (Deficit), which beat forecasts. February’s Trade Deficit eased to -NZD 385 million, bettering forecasts at – NZD 808 million and a previous Deficit of -NZD 1,126 million. In all of this, the Kiwi (NZD/USD) was little changed, at 0.6898. The UK releases its Rightmove House Price Index (y/y no f/c, previous was 2.3%).
New Zealand follows with its Annual Credit Card Spending (no f/c, previous was 5.5%). Germany releases its February PPI (m/m f/c 1.7% from 2.2%; y/y f/c 26.2% from 25% - ACY Finlogix). The US releases its Chicago Fed National Activity Index for February (no f/c, previous was 0.69 – ACY Finlogix). ECB President Christine Lagarde is due to speak at a function in Paris while Federal Reserve Chair Jerome Powell is due to speak about the US economic outlook at a Conference in Washington DC. China’s central bank (People’s Bank of China) has their interest rate meeting scheduled on Thursday.

Trading Perspective: Expect the risk-on sentiment to start off on a shaky note in Asia. Traders will be cautious. The spotlight will continue to be on the Ukraine-Russia turmoil. Yesterday (Sunday) conditions worsened. Fighting for the control over a key port city, Mariupol intensified. Expect the European currencies to weaken while those in the US and Australasia will remain firm. Central bank speak will be the other major drivers this week with the ECB’s Lagarde, Federal Reserve’s Powell and RBA’s Lowe all scheduled to deliver remarks today. Expect further choppy trading in FX today and most likely in the week ahead. These are interesting times for traders where opportunities lie.

• EUR/USD – The rally in the shared currency proved to be short-lived even with the risk-on stance from markets. On Friday, the EUR/USD pair closed at 1.1052 from 1.1097 at the open. Overnight low traded was at 1.10031. For today, immediate support can be found at 1.1030 and 1.1000. Immediate resistance lies at 1.1090, 1.1120 and 1.1150. Look for further volatility in this currency pair, likely range 1.1000-1.1100. Continue to sell EUR/USD rallies.
• AUD/USD – While the Australian Dollar has outperformed, its topside will be limited with risk aversion building once again. Overnight the AUD/USD traded to a high at 0.7418. Immediate resistance for today lies at 0.7420 followed by 0.7450. On the downside, immediate support is at 0.7390 and 0.7360. Look to sell any AUD/USD rallies today in a likely range between 0.7350-0.7420.

(Source: Finlogix.com)

• USD/JPY – against the Japanese currency, the Greenback traded to an overnight high at 119.40 before easing to 119.15 in late New York. Immediate resistance for today lies at 119.40 followed by 119.70. Immediate support can be found at 118.90, 118.60 and 118.30. Expect another roller coaster ride in this currency pair. Likely range 118.60-119.60. To kick off this week, just trade the range, can’t go wrong with that.
• GBP/USD – Sterling edged higher against the US Dollar despite a lower Euro. The British Pound rallied to close at 1.3178 from 1.3152 on Friday. Overnight high traded was at 1.3197. For today, immediate resistance is found at 1.3200 followed by 1.3230. Immediate support lies at 1.3140 followed by 1.3110. Look for GBP/USD to trade a likely, albeit choppy range today between 1.3110-1.3210 today. Preference is to sell rallies.

Have a good Monday and week ahead all. Trade well.

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