FX Volatility Soars as Russia Invades Ukraine; DXY Soars

Michael Moran, Senior Market Strategist & Trading Mentor at ACY Securities

25.02.2022 10:00 am

#stocks

Euro, GBP, EMFX Tumble; Rouble Plunges to Record Low
Summary: FX volatility soared after Russia launched a military attack and invaded Ukraine, igniting a war it has been threatening to start. The US and its allies vowed to hit Russia with harsh sanctions after its massive assault, the largest in Europe since World War 2. The Dollar Index (DXY), which gauges the value of the US Dollar against a basket of 6 major currencies soared to finish up 0.7% at 97.02, after hitting an overnight and near 8-month high at 97.74. European, Asian and Emerging Market currencies bore the brunt of the Dollar’s gain. The Euro (EUR/USD) closed at 1.1195 from 1.1335 on Wednesday after plunging to 1.1106 overnight. Sterling (GBP/USD) slumped 1.14% at the close of trading in New York to 1.3390 (1.3595). Overnight, the British Pound traded to a low at 1.3273. Risk leader, the Australian Dollar (AUD/USD) fell 0.90% to 0.7165 from 0.7225 yesterday. The Kiwi (NZD/USD) slumped to 0.6695 from 0.6740 and a high at 0.6773 after the RBNZ lifted its Overnight Cash Rate by 25 basis points to 1.0% (0.75%) on Wednesday. RBNZ Governor Graeme Orr said they aim to raise rates as quickly as possible. USD/JPY rallied to 115.67 (115.07 Wednesday) supported by the market’s high risk, high inflation stance. Against the Asian and Emerging Market currencies, the Greenback finished with strong gains. The US Dollar jumped to close at an all-time high against the Russian Rouble to 87.3000 from 81.00 on Wednesday. The Greenback jumped against the Singapore Dollar (USD/SGD) to 1.3560 from 1.3450 Wednesday, hitting an overnight and near 2-month high at 1.3609. Equities pared losses with the US DOW settling at 32,920 from 33,720 on Wednesday. The S&P 500 was last at 4,252 (4,325). The price of Brent Crude Oil rocketed to USD 105.79 overnight and near 7.1/2 year high, before slipping to settle at USD 98.35 (USD 96.50 Wednesday). Gold and Silver prices tumbled. Spot Gold finished 1% lower to USD 1,890 (USD 1,899). Treasury bond yields finished mixed. The benchmark US 10-year note closed with a yield at 1.96% (1.93% Wednesday). Germany’s 10-year Bund yield dropped to 0.17% from 0.24% Wednesday. Japan’s 10-year JGB yield was unchanged at 0.19%.

Data released yesterday saw Australia’s Q/Q Private Capital Expenditure fall to 1.1%, against median estimates at 2.6%, and a previous upward revised -1.1% (from -2.2%). UK Realised Sales fell to 14 from a previous 28 and lower than expectations of 26. US Preliminary Q/Q GDP matched economist’s expectations at 7%, and up from the previous 6.9%. China’s Conference Board’s Leading Index rose to 1.0% from 0.6% previously. US New Home Sales eased to 801,000 units from an upwardly revised previous sales figure of 839,000 (811,000). Earlier this morning, New Zealand released its Q/Q Retail Sales rose to 8.6%, beating median estimates at 6.2%, and a previous -8.1%. New Zealand’s Q/Q Core Retail Sales climbed to 6.8% from a previous -6.7% and higher than forecasts at 5.5%. New Zealand’s Trade Deficit rose to -NZD 1,082 million from a previous -NZD 477 million, and median expectations at -NZD 500 million. The Kiwi (NZD/USD) hardly budged on these numbers, currently sitting at 0.6693 from its New York close at 0.6695.

EUR/USD – The shared currency tumbled under the weight of broad-based US Dollar strength and Europe’s proximity to Russia and the Ukraine. EUR/USD finished at 1.1195 from Wednesday’s 1.1335 opening. In volatile overnight trade, FX markets pushed the Euro to a low at 1.1106, not seen since June 2020.
GBP/USD – Sterling plunged 1.14% to settle at 1.3390 from 1.3595 Wednesday. Overnight, the British Pound sank to a two-month low at 1.3273 as markets took a risk-off and high inflation stance. The GBP/USD pair hit an overnight high in volatile trade at 1.3547.
AUD/USD – slip-sliding away. After trading to an overnight high at 0.7229, the Aussie Dollar slumped to finish at 0.7160 (0.7220 opening on Wednesday). Risk aversion and a rise in US yields following robust US House Price and Flash PMIs earlier in the week weighed on the Australian Dollar.
USD/JPY – The Dollar extended its climb against the Japanese Yen supported by a rise in US bond yields. USD/JPY settled at 115.67 (115.07 Wednesday). Overnight high traded was at 115.69. The benchmark US 10-year bond yield rose to 1.96% from 1.93% Wednesday. Japan’s 10-year JGB rate was unchanged at 0.19%.

On the Lookout: Economic data releases pick up today as we come to the last trading day of this week. The focus is still on Eastern Europe and developments will be closely monitored after Russia launched its military attack, invading Ukraine. Japan kicks off Asian data with its Tokyo Core CPI for February (y/y f/c 0.4% from previous 0.2% - ACY Finlogix). The UK starts off European reports with its February GFK Consumer Confidence Index (f/c -19 from previous -19). Germany follows with its Final GDP Growth Rate (q/q f/c -0.7% from 1.7%, y/y f/c 1.4% from 2.9% - ACY Finlogix). France follows with its Final GDP (q/q f/c 0.7% from 3.1%; y/y f/c 5.4% from 3.5%). Switzerland releases its February KOF Leading Indicators (no f/c, previous was 107.8). Italy follows with its February Consumer Confidence report (no f/c, previous was 114.2). The Eurozone releases its Final February Economic Sentiment Index (no f/c, previous was 112.7). The US rounds up today’s economic releases with its January Personal Spending (m/m f/c 0.6% from -0.6%), US January Personal Income (m/m f/c -0.3% from 0.3%), US January Durable Goods Orders (m/m f/c 0.5% from previous -0.9%), US January Core Durable Goods Orders (f/c 0.4% from 0.4%), US January Pending Home Sales (m/m no f/c, previous was -3.8%, y/y no f/c, previous was -6.9%). Finally, the US releases its University of Michigan February Final Consumer Sentiment Index (f/c 61.7 from 67.2) Data and Forecasts courtesy of ACY.

Trading Perspective: Expect further volatile trade in FX today with the US Dollar maintaining its advantage against its rivals. The Emerging Market currencies will bear the brunt of high risk, high inflation sentiment. Latest reports focus on the Russian invasion which appears to be well on its way. Meantime, the US, and its allies will continue to cooperate with one another, applying pressure to Russia with new sanctions to be issued. Developments are moving at a quick pace and today’s markets will react accordingly.

EUR/USD – the Euro will continue to bear the brunt of the major currencies against the Greenback. The shared currency finished down almost 1% at 1.1195. Immediate support can be found at 1.1170, 1.1140 and 1.1105. On the topside, immediate resistance lies at 1.1220, 1.1250 and 1.1280. Look for a volatile day on the Euro today with a likely range trade between 1.1120-1.1270. While the Euro looks heavy, be prepared to go on either side.
AUD/USD – the Aussie Battler tumbled under the weight of the overall stronger Greenback and weaker Asian and Emerging Market currencies. The AUD/USD pair closed at 0.7160 from Wednesday’s 0.7225. On the day, expect immediate support at 0.7130, 0.7100 and 0.7070. Immediate resistance lies at 0.7190, 0.7220 and 0.7250. Look for a choppy one today with a likely range between 0.7120-0.7220.
GBP/USD – Sterling crumbled against the mighty US Dollar to its close at 1.3390 (1.3595 Wednesday). Overnight low traded for the British Pound was at 1.3273. On the day, immediate support for Sterling lies at 1.3340, 1.3300 and 1.3270 (strong). On the topside, immediate resistance is found at 1.3430, 1.3460 and 1.3500. Expect further choppy trade in this currency pair, likely range 1.3320-1.3480.
USD/JPY – the Dollar had a volatile ride against the Japanese currency, plunging to an overnight low at 114.41 before soaring to 115.69 highs, settling in late New York at 115.67. Higher oil prices are not good for the Japanese currency since Japan’s top import is mineral fuel which includes oil. On the day, immediate resistance lies at 115.70 followed by 116.00 and 116.30. Immediate support can be found at 115.30, 115.00, 114.70 and 114.40. Expect Japanese exporters to go on the offer in USD/JPY today. Likely range 114.70-115.70.

(Source: Finlogix.com)

Tin helmets on, be quick and nimble, its going to be one of those Fridays, only in FX. Hoping and praying for peace in Eastern Europe but staying fluid. Happy Friday all, top weekend too.

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