Hawkish Fed Speak Keeps DXY Bid; Risk-Off, US Inflation Looms

Michael Moran, Senior Currency Strategist at ACY

11.05.2022 11:45 am

#stocks

EUR Extends Slide; AUD, NZD Hover Near Yearly Lows; EMFX Dip

Summary: The Dollar Index (DXY) continued its grind higher ahead of tonight’s US CPI release which is expected to remain above 8% (8.1%) on an annual basis. Several Federal Reserve speakers supported rate hikes expressing concerns that inflation remains too high. Loretta Mester, Cleveland Federal Reserve President said a 75-basis point rate increase is not out of the table forever. A favourite gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) climbed 0.27% to 103.93 (103.75 yesterday). The Australian Dollar (AUD/USD) tumbled to an overnight and yearly low at 0.6910 before rebounding to close at 0.6937 (0.6955 yesterday). Once again, the Antipodean currency was weighed down by broad-based US Dollar strength and the market’s risk-off stance. Today sees the release of Chinese CPI and PPI data as the country struggled from Covid-linked lockdowns amidst its Zero Covid Tolerance policy. The Euro (EUR/USD) fell back to 1.0530 from 1.0558 after another attempt to rally failed. Improvements in both German and Eurozone ZEW Economic Sentiment Indexes lifted the shared currency initially. Sterling hovered above the 1.2300 support level, settling at 1.2320 from 1.2330 yesterday. Against the Japanese Yen, the US Dollar was little changed at 130.45 (130.35). Global bond yields eased in tandem ahead of today’s Chinese, German and US inflation data. The benchmark US 10-year treasury yield slipped 4 basis points to 2.99%. Germany’s Ten-Year Bund yield fell to 1.00% from 1.09% yesterday. Global Stock markets finished mixed. After dropping initially, the DOW rebounded to finish at 32,163 against 32,300 yesterday, down 0.4%. The S&P 500 settled at 3,997 (4,000).

Data released yesterday saw Japanese Household Spending (y/y) ease to -2.3% in April, better than estimates at -3.2%. Australia’s National Australia Bank Business Confidence Index dipped to 10 from 16 previously. Italian Industrial Production (April) beat expectations with a 0.0% release against -1.4%. Germany’s ZEW Economic Sentiment Index improved to -34.3 from a previous -41.0 and bettering than estimates at -43.0 The Eurozone ZEW Economic Sentiment Index was also better at -29.5 from a previous 43.0, beating expectations at -42.0.

EUR/USD – the shared currency retreated to 1.0530 from yesterday’s open at 1.0558. The shared currency traded to an overnight low at 1.0524. Overnight high traded was at 1.0585. Sentiment remained overwhelmingly bearish on the Euro with short covering supporting the shared currency.
AUD/USD – the Aussie Battler kept pushing lower weighed by the market’s risk-off stance and broad-based US Dollar strength. The AUD/USD pair closed at 0.6937 (0.6957 yesterday). Commodity prices also pulled back. Spot Silver tumbled 2.65% (to USD 21.25). Overnight low traded for the AUD/USD pair was at 0.6910.
GBP/USD – Sterling dipped to 1.2320 New York close from yesterday’s opening at 1.2330. Overnight the British Pound slid to a low at 1.2291 before rallying in late trade. Like the other major currencies, the GBP/USD was weighed by broad-based US Dollar strength. Which was the result of hawkish comments from several Fed speakers.
USD/JPY – against the Japanese Yen, the Dollar was little-changed at 130.45 (130.35 yesterday). Despite the lower close in the US treasury yields, hawkish Fed rhetoric kept this currency pair supported. Overnight high traded for USD/JPY was at 130.55.

On the Lookout: Today’s economic data calendar is highlighted by CPI reports from China, Germany, and the US. Australia kicks off today with its Westpac Banking Corp Consumer Confidence (no forecasts, previous was -0.9%). China follows next with its April Consumer Price Index (m/m f/c 0.2% from 0.0%; y/y f/c 1.8% from previous 1.5% - ACY Finlogix). Chinese April PPI follows (y/y f/c 7.7% from 8.3% - ACY Finlogix). Japan releases its March Leading Economic Index (f/c 100.4 from 100.0 – FX Street). Europe sees the release of Germany’s April Consumer Price Index (m/m f/c 0.8% from a previous 2.5%; y/y f/c 7.4% from 7.3% - ACY Finlogix). The US rounds up today’s data releases with its April Inflation Rate (m/m f/c 0.2% from 1.2%; y/y f/c 8.1% from 8.5% - ACY Finlogix), US April Core Inflation Rate (m/m f/c 0.4% from 0.3%; y/y f/c 6% from 6.5% - ACY Finlogix).

Trading Perspective: Its all about the US CPI report due out tonight. The Dollar Index (DXY), which measures the value of the Greenback against a basket of 6 major currencies, stayed bid at 103.93. Which suggests that speculators continue to hold on to their long US Dollar bets into tonight’s number. April Headline CPI is forecast to ease to an annual rate of 8.1% from its current 8.5%. If the Headline Inflation number falls under 8%, say to 7.8 or 7.9%, we could see speculative long Dollar bets scramble for the exits. If the Annual CPI rose to above 8.5%, the Dollar Index would soar above the 104.00 resistance level. Added to that is the rhetoric from Federal Reserve officials following the release of the report. While there are no scheduled speeches recorded by the press, there could be some surprises. Tomorrow also sees the release of US Producer Prices, which are also expected to ease. Given that the speculative long US Dollar bets are overstretched, the risk may be in favour for a reversal. Tonight’s US Inflation report looms large. The one constant that remains is FX volatility. Happy days.

EUR/USD – Once again the shared currency closes just above its support threshold at 1.0500, closing at 1.0530. Which is not far from the overnight low recorded at 1.0524. Immediate support today lies at 1.0520 followed by 1.0500 and 1.0470. A clean break of 1.0500 could see 1.0450 first up. On the topside, immediate resistance is found at 1.0560, 1.0590 and 1.0620. Look a likely range today of 1.0510-1.0580. Preference is still to sell rallies.

(Source: Finlogix.com)

AUD/USD – the Aussie Dollar continued to slide lower, finishing at 0.6937 after trading to an overnight and yearly low at 0.6910. Which is where immediate support is found. The next support level lies at 0.6880 followed by 0.6850 and 0.6800. Immediate resistance can be found at 0.6980, 0.7010 and 0.7040. Expect more choppy trade in the Aussie Battler. Likely range today 0.6900-0.6980. Trade the range, and despite the heavy feel, am neutral at current levels.
USD/JPY – against the Japanese Yen, the Dollar edged higher to 130.45 from 130.35 yesterday. Overnight high traded was at 130.55. On the day, immediate resistance is found at 130.60 followed by 130.90. Immediate support can be found at 130.10, 129.80 and 129.50. Expect more roller coaster trading in this currency pair, likely range today 129.80-130.80. Prefer to buy USD/JPY on dips.
GBP/USD – Sterling finished little changed once again hugging the 1.2300 level (1.2320 New York close). Immediate support for today lies at 1.2290 (overnight low traded was 1.2291). The next support level is found at 1.2260 followed by 1.2230 and 1.2200. Immediate resistance lies at 1.2350, 1.2380 and 1.2410. Look for further choppy trade in a likely range today of 1.2280-1.2380. Just trade the range shag on this one. Preferences is to sell rallies.

Have a good and profitable trading day ahead all. Happy Wednesday.

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