Dollar Sell-Off Slows; US PPI Climbs the Most in Ten Years

Michael Moran, Senior Currency Strategist at ACY

14.01.2022 10:30 am

#stocks

JPY Outperforms, GBP, AUD Flat, Stocks Fall, Yields Ease

Summary: The Dollar’s sell-off that began this week slowed after US Producer Prices rose less than expected in December. However, the climb in December Wholesale Prices were the biggest on a 12-month basis since data went back to 2010. On the employment front, US Weekly Unemployment Claims rose to 230,000 from 207,000 the previous week, and higher than median forecasts at 199,000. The Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of 6 major currencies settled at 94.80 from 94.90 yesterday and 95.60 Wednesday. After hitting an overnight and near 3-month high at 1.3749, Sterling (GBP/USD) slid to finish little changed at 1.3715 (1.3712 yesterday). Uncertainty over the future of current UK Prime Minister Boris Johnson due to his attendance to a work party despite lockdowns saw limited impact on the British currency. The UK remained well ahead of other major developed nations in its handling of Omicron given its successful rollout of booster jabs. Against the Japanese Yen, the Greenback (USD/JPY) slumped 0.53% to 114.07 (114.50 yesterday). The Euro (EUR/USD) edged up to 1.1460 from 1.1450. Earlier in the week, the shared currency jumped above the 1.1400 resistance threshold after trading below it since the start of 2022. The Australian Dollar (AUD/USD) settled at 0.7285, little changed from 0.7288 yesterday as speculative short bets continued their unwind. Overnight, AUD/USD traded to 0.7314, a fresh 2022 high. The USD/CAD pair finished at 1.2492 from 1.2500. Against the Asian and Emerging Market currencies, the US Dollar was mixed. USD/SGD (US Dollar-Singapore Dollar) closed flat at 1.3455. The USD/THB (Dollar-Thai Baht) pair dipped to 33.22 from 33.27 yesterday. USD/CNH (US Dollar-Offshore Chinese Yuan) closed at 6.3635 from 6.3615.
Global bond yields eased led by the US 10-year treasury note which settled at 1.70% from 1.73% yesterday and 1.76% at the start of the week. Other global bond rates were lower. Germany’s 10-year Bund yield settled at -0.09% (-0.06%). The DOW fell to 36,203 (36,342). The S&P 500 closed at 4,677 from 4,733.9. Australia’s ASX 200 settled 0.42% lower to 7,433 (7,447).
Data released yesterday saw US Headline PPI (m/m) dip to 0.2% against expectations of 0.4% and a previous 0.8%. US Yearly Headline PPI dipped to 9.7% from a previous 9.8%, and lower than forecasts at 9.8%. US Core PPI (m/m) matched forecasts, rising 0.5% but lower than a previous 0.9%. US Annual Core PPI climbed to 8.3%, beating median estimates at 8% and a previous 7.9%.

EUR/USD – the shared currency edged higher against the Greenback to settle at 1.1460 in late New York trade from 1.1450 yesterday, a gain of 0.18%. Overnight, the Euro soared to a fresh 2022 high at 1.1481. Overnight low traded for the EUR/USD pair was at 1.1436.
AUD/USD – the Aussie Battler kept most of its overnight gains finishing little changed at 0.7285 from 0.7288 yesterday. Earlier in the New York session, the AUD/USD pair soared to 0.7314, not seen since mid-November 2021. Overnight low traded was at 0.7273.
USD/JPY – weighed by lower US treasury bond yields, the Greenback tumbled against the Japanese Yen to 114.00 overnight lows before settling at 114.07. Yesterday, the USD/JPY pair was trading at 114.50. Earlier this week, USD/JPY was changing hands at 115.30.
USD/CAD – slip-sliding away, the US Dollar finished in late New York at 1.2492 (1.2500). Overnight low traded for the USD/CAD pair was at 1.2453, lows not seen since November 11 last year. The overnight high traded was at 1.2510.

On the Lookout: Today’s economic calendar picks up with economic reports from Japan, Australia, China, the Eurozone, UK, Germany, and the US. Japan is first with its December PPI (m/m f/c 0.3% from 0.6%, y/y f/c 8.8% from 9% - ACY Finlogix). Australia follows with its November Home Loans (m/m f/c 0% from -4.1%). China releases its December Trade Balance (Surplus +USD 74.5 billion from a previous +USD 71.72 billion). Chinese December Exports (y/y f/c 20% from 22%), Chinese December Imports (f/c 26.3% from 31.7%). The UK starts off European data with its November Goods Trade Balance (m/m f/c -GBP 14.2 billion from -GBP 13.93 billion), UK November GDP (m/m f/c 0.4% from 0.1%; y/y f/c 7.5% from 4.6%), UK November Industrial Production (m/m f/c 0.2% from -0.6%; y/y f/c 0.5% from 1.4%), UK Manufacturing Production (y/y f/c -0.3% from 1.3%). France follows with its Final December Inflation Rate (m/m f/c 0.2% from 0.4%; y/y f/c 2.8% from 2.8%). Germany releases its Full Year GDP Growth (f/c 2.7% froom -4.6%). The Eurozone follows with its November Trade Balance (no f/c, previous was +EUR 3.6 billion). The US rounds up today’s data releases with its December Headline Retail Sales (m/m f/c 0% from 0.3%; y/y no f/c, previous was 18.2%), US December Core Retail Sales (m/m f/c 0.2% from 0.3%). US December Capacity Utilisation (f/c 77% from 76.8%), US December Manufacturing Production (m/m f/c 0.3% from 0.5%; y/y no f/c, previous was 4.6%), US December Industrial Production (m/m f/c 0.3% from 0.5%, y/y no f/c, previous was 5.3%). US Michigan Preliminary Consumer Sentiment (f/c 70 from previous 70.6) rounds up today’s busy economic data releases. All data forecasts are from ACY Finlogix. ECB President Lagarde and US FOMC Vice Chairman John Williams have speaking schedules at different events.

Trading Perspective: The Dollar’s sell-off that began this week was due mainly to position adjustments following what would be considered bullish news for the Greenback. It was a classic case of buy the rumour, sell the fact for the Greenback after the US Federal Reserve Chair Jerome Powell and some of his colleagues endorsed the outlook for multiple rate hikes in 2022. Earlier this week, the US CFTC Commission of Traders report saw speculative net long US Dollar bets near their largest in 2 years. Ahead of today’s plethora of economic data releases coming on a Friday, we can expect consolidation after a big move in FX this week. Trading conditions will remain choppy, which for many FX traders, is ideal. Get involved but stay nimble.

AUD/USD – The Aussie Battler surprised many with its strong bounce given the bearish sentiment that surrounded the currency at the start of this year. Overnight the AUD/USD pair traded to a high at 0.7314 before easing to settle at 0.7285 (0.7288 yesterday). Immediate resistance today lies at the 0.7310 level. The next resistance level is found at 0.7340 and 0.7370. On the downside, support can be found at 0.7275, 0.7250 followed by 0.7220. We could be in for a choppy session today in a likely range of 0.7250-0.7320. Trade the range today with the preference to sell rallies.
USD/JPY – Against the yield sensitive Japanese Yen, the Greenback tumbled to an overnight low at 114.00 from 114.50 yesterday. The fall in the US 10-year bond yield to 1.70% (1.73%) weighed on this currency pair. Japanese 10-year JGB rates were unchanged at 0.12%. On the day, immediate support lies at 114.00 followed by 113.70. Immediate resistance is found at 114.30, 114.60 and 115.00. For today look to trade a likely range of 113.90-114.90. The preference is to buy USD dips.
EUR/USD – the shared currency benefitted from the US Dollar’s overall weakness, finishing 0.18% higher to 1.1460 (1.1450 yesterday). Overnight high traded was at 1.1480 which is today’s immediate resistance. The next resistance level lies at 1.1510. On the downside, immediate support can be found at 1.1430 (overnight low traded was at 1.1436). The next support level lies at 1.1400. Looking to sell rallies in a likely range today of 1.1420-90.
GBP/USD – Sterling finished little changed against the Greenback at 1.3715 (1.3712 yesterday). Despite strong calls for British PM Boris Johnson to resign, the British currency was stable. Should Johnson resign, the British currency could climb versus the Greenback and other Rivals. GBP/USD has immediate resistance at 1.3740 (overnight high traded was 1.3749). The next resistance level lies at 1.3770 followed by 1.3800. On the downside, immediate support lies at 1.3700 (overnight low traded was 1.3704). The next support level is found at 1.3670 and 1.3640. Look to trade a likely range today of 1.3685-1.3785. We could see fireworks in the currency pair today. Happy days!