Euro, GBP Tumble; Rouble Plunges; NATO, West Boost Sanctions vs Russia

Michael Moran, Senior Currency Strategist at ACY

02.03.2022 08:30 am

#stocks

DXY Climbs; Oil Prices Surge; Stocks, Bond Yields and Risk Appetite Slump

Summary: The Euro and Sterling tumbled, while the Russian Ruble plunged to all-time lows against the US Dollar in volatile markets. Western nations and NATO (North Atlantic Treaty Organisation) increased economic and financial pressure on Russia with further punishing sanctions. Russia’s two largest banks were removed from SWIFT, a global messaging service which connects financial institutions to facilitate rapid and secure payments. The Dollar Index (USD/DXY), a favoured measure of the Greenback’s value against a basket of 6 major currencies soared 0.75% to 97.42 (96.67 yesterday) as risk appetite deteriorated. Against the US Dollar, the Russian Rouble weakened past the 100 level to 110 after hitting a high at 117, down 6.5%. Sterling and the Euro were the hardest hit against the Greenback, losing 0.8% and 0.88% respectively. At the close of trading in New York, the EUR/USD pair was last at 1.1120 (1.1211 yesterday) while Sterling (GBP/USD) settled at 1.3312 from Tuesday’s opening at 1.3417. Apart from the proximity of Europe and the UK to Russia, both economies are sensitive to any slowdown in Russia. The Australian Dollar (AUD/USD) settled marginally lower against the Greenback to 0.7250 (0.7262 yesterday). Australia does not import oil from Russia while strong metal prices supported the Aussie Battler. Against the Japanese Yen, Asian and Emerging Market currencies, the US Dollar was mixed. USD/JPY edged lower to 114.87 (114.95), USD/SGD rallied to 1.3580 from 1.3565 yesterday and the Dollar-Chinese Offshore Yuan (USD/CNH) was last at 6.3200 (6.3150). Oil prices surged. Brent Crude Oil settled above the USD 100 level to USD 100.50 (USD 97.90 yesterday). WTI Oil advanced 9% to USD 104.30 from USD 92.00. Wall Street stocks tumbled. The DOW lost 1.83% to 33,267 (33,867) while the S&P 500 was last at 4,297 from 4,370, down 1.7%. Treasuries were also volatile with bond yields falling. The benchmark US 10-year Treasury note lost 14 basis points to 1.72% from 1.86%. Germany’s ten-year Bund yield slumped a whopping 21 basis points to -0.08%. That’s huge. Economic data released yesterday were relegated to the background with all the focus on the Eastern Europe. The RBA left its Overnight Cash Rate unchanged at 0.10% which was widely expected. Germany’s Preliminary CPI in February climbed to 0.9% from 0.4%, beating estimates at 0.8%. German Manufacturing PMI was at 58.4 from 58.5. The Eurozone Final Manufacturing PMI dipped to 58.2 from a previous 58.4. The UK’s Final Manufacturing PMI climbed to 58.0 from 57.3, bettering estimates at 57.3. Canada’s February GDP (m/m) was at 0.0%, matching expectations at 0.0%. The US February ISM Manufacturing PMI rose to 58.6 from a previous 57.6 and beating forecasts at 58.0. US Construction Spending rose to 1.3% from a previously upward revised 0.8%, and bettering expectations at 0.2%.

EUR/USD – the shared currency tumbled to close in New York at 1.1120 from 1.1211 yesterday, a loss of 0.88%. Overnight the EUR/USD pair slid to a 1.1089, just over 8-month lows before rallying in late New York. Europe’s proximity to Russia and its economy’s dependence on Russian oil and gas products weighed on the Euro.
GBP/USD – Sterling was the next worst performing FX, falling 0.8% against the Greenback to 1.3312 from 1.3417 yesterday. Overnight the GBP/USD pair traded to a low at 1.3302. Broad-based US Dollar strength and risk aversion weighed on the British currency.
USD/JPY – against the haven-sought Japanese Yen, the Dollar settled lower despite its broad-based rally against the other major and Asian and Emerging Market currencies. The deterioration of risk appetite saw funds flow into the Japanese currency. The USD/JPY pair edged lower to 114.87 from yesterday’s 114.95.
AUD/USD – the Aussie Battler managed to hold its own against the broadly based stronger Greenback. AUD/USD was last at 0.7250 from yesterday’s 0.7262. Rising prices in precious and industrial metals supported the Australian Dollar. Silver gained just over 4% overnight while spot Gold jumped 2% to USD 1,945 (USD 1,910 yesterday). Overnight high traded for the AUD/USD pair was at 0.7290.

On the Lookout: Markets will continue to focus on Russia as it prepares to intensify its attack on Ukraine. Today, US President Joe Biden is scheduled to address the nation at 1 pm Sydney time (9 pm New York). Jerome Powell has his semi-annual testimony to US lawmakers as well. Economic data releases today kicked off with New Zealand’s Building Consents which slumped -9.2% from a previous 0.4%. New Zealand’s q/q Overseas Trade Index fell to -1.0% from 0.7% the previous quarter and lower than forecasts at 0.9%. Japan follows next with its Capital Spending (q/y f/c 2.9% from 1.2%). Australia releases its GDP Growth Rate (q/q f/c 3% from -1.9%; y/y f/c 3.7% from 3.9% -ACY Finlogix). The UK follows with its February Nationwide House Price Index (m/m f/c 0.6% from 0.8%; y/y f/c 10.7% from 11.2%). Germany releases its February Unemployment Rate (f/c 5.1% from 5.1%), German Unemployment Change for February (f/c -25k from -48k – ACY Finlogix). The Eurozone follows with its February Eurozone Flash CPI (y/y f/c 5.6% from 5.1%), Eurozone Flash Core CPI (y/y f/c 2.6% from 2.3%). The US follows next with its ADP Private Jobs Non-Farm Employment Change (f/c 378,000 from -301,000). The Bank of Canada is expected to raise its Overnight Rate to 0.50% from 0.25% at the conclusion of its meeting later today.

Trading Perspective: With risk appetite susceptible to further deterioration on the likelihood that Russia will intensify its attack on Ukraine, the US Dollar will stay bid against most of its Rivals. Which leaves the Euro and British Pound susceptible to further falls. Risk, Asian and Emerging Market currencies could fall further against the Greenback. Asset prices will continue to be pressurised in the current environment. All eyes on the Kremlin and President Putin. While markets calmed toward the close of North American trade, they remain fragile. The economic clasp by Western nations on Russia will continue to tighten with more global companies reducing ties. FX volatility will stay elevated.

EUR/USD – The shared currency tumbled to an overnight and 8-month low at 1.1089 before bouncing to settle at 1.1120 in late New York. EUR/USD opened at 1.1211 yesterday. Expect immediate support for the Euro at 1.1100 today. The next support lies at 1.1080 where a sustained break could see further losses to the 1.10 level. Immediate resistance can be found at 1.1150, 1.1180 and 1.1210. Look for continued volatility in this currency pair with the pressure still very much on the downside. That said, be wary of any bounces as the speculators are short. Likely range 1.1085-1.1235. Just trade the range shag, nice and wide.

(Source: Finlogix.com)

GBP/USD – Sterling finished as the second worst performer, slumping 0.8% against the Greenback to 1.3312 (1.3417 yesterday). On the day, look for immediate support at 1.3300 (overnight low traded was 1.3302). The next support level lies at 1.3270 and 1.3240. Immediate resistance is found at 1.3350, 1.3380 and 1.3410. Look for more choppy trade in this currency pair as well, likely between 1.3290-1.3430.
AUD/USD – The Australian Dollar held well despite the deterioration in risk appetite and weaker Asian and Emerging Market currencies. Overnight the Australian Dollar slid to a low at 0.7238 from yesterday’s open at 0.7262, closing at 0.7250. Immediate support for the Aussie lies at 0.7220 followed by 0.7190 and 0.7160. On the topside, immediate resistance can be found at 0.7290 (overnight high) and 0.7320. Look for a choppy trade in this currency pair as well, likely 0.7180-0.7280. Preference is to sell rallies.
USD/JPY – Against the haven sought Japanese Yen, the US Dollar edged marginally lower to 114.87 from 114.95 yesterday. Normally, in the current environment, one would have seen more flight into the Japanese currency. What is keeping that from occurring is growing expectations of a Fed rate hike given the inflationary backdrop in the U.S. On the day, immediate support for the USD/JPY pair lies at 114.70, which is the overnight low. The next support level is found at 114.40. A clean break of 114.40 could see 114.00 and lower. On the topside, immediate resistance is found at 115.30 (overnight high), followed by 115.60. On the day, look for a likely trade between 114.60-115.60. The preference is to sell rallies to 115.50. Further risk aversion may see the USD/JPY pair sliding further.

While traders welcome the heightened volatility, no one wants to see lives lost. Hoping and praying that Putin comes to his senses and pulls his troops back. Meantime, keep those tin helmets on, trade well, with hopes up. A better Wednesday for all ahead.

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