Euro Ratchets Higher, Hopes Build on Russian Pledge to Cut-back Troops

Michael Moran, Senior Currency Strategist at ACY

30.03.2022 01:00 pm

#stocks

DXY Tumbles, JPY Rallies; US Ten-Year Bond Yield Slumps; Stocks Climb

Summary: The battered Euro (EUR/USD) ratcheted higher as cautious optimism built on current peace talks between Russia and Ukraine. Short covering lifted the shared currency 0.85% higher against the Greenback, finishing at 1.1085 (1.0970 yesterday). Latest reports that Russia had made efforts to de-escalate the armed conflict, which have been ongoing for over a month now, boosted the EUR/USD pair to 1.1137 overnight high before settling. The Dollar Index (DXY) which measures the value of the Greenback against a basket of 6 major currencies tumbled 0.67% to 98.453 from 99.27. The benchmark US 10-year treasury bond yield slumped 6 basis points to 2.39%. The US 2-year yield though closed at 2.37% from 2.36% yesterday. The 2 against 10-year US yield gap inverted at one stage. Which is a recession signal from bond traders. Germany’s 10-year Bund yield finished at 0.63% from 0.57% yesterday. In choppy see-saw trade, the US Dollar settled 0.58% lower against the Japanese Yen to 122.90 from 124.17. The Australian Dollar (AUD/USD) rebounded to close at 0.7512 from 0.7478 yesterday. New Zealand’s Kiwi (NZD/USD) found its wings, soaring 0.48% to 0.6939 from 0.6890. The British Pound (GBP/USD) edged up to 1.3095 (1.3082 yesterday). Against the Asian and Emerging Market currencies the Greenback was mostly lower as risk appetite improved. The USD/CNH pair (Dollar vs Offshore Chinese Yuan) closed at 6.3740 from 6.3860 yesterday while USD/THB (Dollar vs Thai Baht) tumbled to 33.47 from 33.77, down 0.96%. Wall Street stocks climbed with the DOW settling 0.9% higher to 35,277 (34,967). The US S&P 500 rallied 1.1% to 4,630 from 4,575 yesterday. Germany’s DAX Index soared to 14,835 against 14,555.
Brent Crude Oil slid 1.25% to USD 111.07/barrel from USD 114.80/barrel. Gold eased to USD 1, 919 from USD 1,923.00 while Silver dipped to USD 24.77 (USD 25.00).
Data released yesterday saw Japan’s Unemployment Rate for February improve to 2.7% versus forecasts at, and a previous 2.8%. Australia’s February Retail Sales rose 1.8% in February, beating median forecasts at 1%, and matching a previous rise of 1.8%. Germany’s GFK Consumer Sentiment Survey for April fell to -15.5 from a previous -8.5, and lower than estimates at -12.0. UK February Mortgage Approvals dipped to 71,000 from 74,000. US House Price Index (January) climbed 1.6% from a previous 1.2%, beating median forecasts at 1.4%. US S&P Case Shiller-20 House Price Index for January (y/y) climbed 19.1%, beating estimates and a previous 18.6%. US JOLTS Job Openings in February rose to 11.266 million from 11.283 million, bettering estimates at 11.0 million. US Conference Board Consumer Confidence Index eased to 107.2 from a previous 110.5, but higher than median estimates at 106.9.

EUR/USD – the Euro had a volatile, see-saw trading session, settling at 1.1085 from yesterday’s open at 1.0970. Overnight, speculative short bets and an overall weaker US Dollar boosted the shared currency to a high at 1.1137. The EUR/USD pair initially tumbled to a low at 1.0969 before ratcheting higher.
USD/JPY – against the yield sensitive Yen, the Greenback tumbled 0.58% to a 122.90 finish in New York against 124.17 yesterday. Trading in the Japanese currency was choppy with the overnight high recorded at 124.30. The slump in the US 10-year bond yield weighed on the Dollar against the Yen.
AUD/USD – broad-based US Dollar weakness kept the Australian Dollar buoyed to finish at 0.7512 from 0.7478 yesterday. Overnight high traded was at 0.7519. The Aussie Battler hit an overnight low at 0.7456 before climbing higher.
GBP/USD – Sterling edged up to 1.3095 in late New York from its opening at 1.3082 yesterday. The British Pound climbed to an overnight peak at 1.3160 in volatile trading conditions. A dip in UK February Mortgage Approvals kept Sterling from climbing higher.

On the Lookout: Today’s economic calendar kicked off with New Zealand’s February Building Permits which saw a month-on-month rise to 10.5% from a previous -8.7%. Despite the rise, the Kiwi (NZD/USD) was flat at 0.6939. Japan follows with its February Retail Sales (m/m f/c 0% from a previous -1.9%; y/y f/c -0.3% from a previous 1.1%). New Zealand follows with its ANZ March Business Confidence Index (no f/c, previous was -51.8). Switzerland kicks off European reports with its KOF Leading Indicator for March (f/c 100.8 from a previous 105) and Swiss ZEW Expectations Survey for March (f/c 9.1 from 9). The Eurozone follows with its Eurozone Consumer Confidence for March (f/c -18.7 from a previous -18.7 – FX Street), Eurozone March Business Climate (no f/c, previous was 1.79). Germany follows with its Harmonised Index of Consumer Prices for March (m/m f/c 1.7% from 0.9%; y/y f/c 5.8% from 5.1% - ACY Finlogix). The US rounds up today’s data releases with its US ADP Employment Change for March (f/c 400,000 from 475,000 – ACY FInlogix), US Core PCE Prices for Q4 (q/q f/c 5% from 4.6% - ACY Finlogix), US Final Q4 GDP (f/c 7% from 7% - FX Street), and US Q4 GDP Price Index (f/c 7.2% from 7.2% - FX Street).

Trading Perspective: While optimism rose on negotiations between Russia and Ukraine, the US was sceptical on the Russian pull back. In early Asia, Russian negotiators said that the troop withdrawals were not a ceasefire. Analysts point to Russia’s failure in its activity surrounding the city of Kyiv as the reason for its withdrawal. Which does not mean that the threat is over with. Risk markets chose to focus on the bright side, lifting stocks and pushing the Dollar Index lower. The situation remains fluid with the one constant, elevated volatility. For those who follow Emerging Markets, the USD/RUB pair has plunged 15% in two days, from 101.50 on Monday to 87.00 this morning. The Euro which was the proxy for the Russia Ukraine conflict rebounded to close 0.85% higher to 1.1085. Interest rates have also provided fireworks with treasury yields trading like spot markets. The benchmark US 10-year yield slumped back down to 2.39% from 2.47% yesterday. Six days ago, the 10-year rate was at 2.28%.

EUR/USD – The Euro rebounded 0.85% higher as hopes that Russia’s pledge to cut back its operations around Kyiv, Ukraine’s capital city may yield peace talks. The United States and some Western nations remain sceptical, suggesting it was more of Russia buying time. Still, short covering in the shared currency saw it soar to an overnight high at 1.1137 before closing at 1.1085. Immediate support lies at 1.1050 followed by 1.1020 and 1.0990. Immediate resistance can be found at 1.1140 and 1.1175. Look for more choppy trade in a likely range of 1.1000-1.1150 today. Just trade the range, nice and wide.

(Source: Finlogix.com)

USD/JPY – the Greenback did a big U-turn after trading to an overnight high at 124.30 from its opening at 124.17 yesterday. The overnight low traded was at 121.98. Japanese exporters must have had a bonanza up near the highs as these levels have not been seen since June 2015. Exporters receive foreign currency (USD, EUR, etc) for their products and have a natural requirement to convert these to Yen. For today, immediate support in the USD/JPY pair lies at 122.60, 122.20 and 121.80. Immediate resistance can be found at 123.40, 123.80 and 124.20. Get ready to rumble in this currency pair, likely range 122.10-124.10.
AUD/USD – the Australian Dollar grinded higher on the market’s risk-on stance, finishing at 0.7512 against its open at 0.7478 yesterday. Overnight high traded for the Aussie Battler was at 0.7519. This morning’s peak was at 0.7526. On the day, immediate resistance is found at 0.7530 followed by 0.7560. Immediate support for the Aussie lies at 0.7480, 0.7450 and 0.7410. Look for further choppy trade in a likely 0.7470-0.7540 range today. Preference is to sell rallies.
GBP/USD – Sterling edged higher to close at 1.3095 from 1.3082 yesterday. Overnight, the British Pound traded to a low at 1.3051 before rallying to its New York close. On the topside, the overnight high recorded was at 1.3160. Immediate support for today lies at 1.3070 followed by 1.3040 and 1.3010. On the topside, immediate resistance is found at 1.3130, 1.3160 and 1.3200. Look for more see-saw trading. Likely range 1.3060-1.3160. Am neutral, just trade the range, there’s a lot within that range.

Strap yourselves in, keep those tin helmets on, and prepare for another day of see-saw, choppy trading. While volatility will remain elevated which is good for traders, hoping and praying that negotiations between Russia and the Ukraine will yield a genuine peace. Have a good Wednesday ahead all.

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