Powell Reinforces Fed’s Hawkish Tilt; US Yields, DXY Climb

Michael Moran, Senior Currency Strategist at ACY

22.04.2022 04:15 pm

#stocks

EUR Steadies, ECB Mulls Rate Rise; AUD, Risk FX Tumble

Summary: FX volatility surged after a spate of hawkish comments from both European Central Bank and US Federal Reserve officials lifted global bond yields. The benchmark US 10-year bond rate resumed its climb, settling at 2.91% from 2.83% yesterday. At the conclusion of its meeting, ECB policymakers said they could raise interest rates at the start of Q3 this year. The Euro had another choppy, see-saw trading session, initially surging to an overnight and one week high at 1.0936 before falling back to close at 1.0840 (1.0850 yesterday). But it was Federal Reserve Chair Jerome Powell’s remarks which called for a 50-basis point hike in the May meeting that echoed loudest. The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies rebounded to close at 100.50 from 100.35 yesterday. The British Pound (GBP/USD) slid 0.3% to 1.3030 (1.3062) on the back of broad-based US Dollar strength. USD/JPY edged higher to 128.35 from 128.05 yesterday. Risk leader, the Aussie Dollar (AUD/USD) fell hardest, down 1.0% to 0.7370 from 0.7450 yesterday. The Kiwi (NZD/USD) slumped 0.74% to 0.6735 (0.6805). Asian and Emerging Market Currencies slid against the Greenback in the risk-off environment. Against the Offshore Chinese Yuan, the Dollar (USD/CNH) soared to 6.4785 from 6.4465 yesterday. The USD/THB pair (Dollar-Thai Baht) rose to 33.90 from 33.75. The rise in global treasury yields pushed global stocks lower. The DOW finished at 34,772 (35,227) while the S&P500 slumped 1.87% to 4,390 (4,472 yesterday). Other global bond yields lifted. Germany’s 10-year Bund yield gained 9 basis points to 0.94%. UK Ten-year Gilt rates were last at 2.01% (1.91% yesterday). Japan’s 10-year JGB yield was unchanged at 0.24%.

Data released yesterday saw New Zealand’s Q1 CPI dip to 1.8% against expectations of 2.0%. The Eurozone’s Final CPI (y/y) eased to 7.4% from a previous 7.5% which was also the median expectation. Final Eurozone Core CPI (y/y) dipped to 2.9% from 3.0%. The US Philadelphia Fed Manufacturing Index slid to 17.6 from 27.4, missing forecasts at 21.5. US Weekly Unemployment Claims climbed to 184,000 higher than forecasts at 177,000. US Conference Board Leading Indicator for March matched estimates at 0.3%.

EUR/USD – The shared currency soared to its overnight and one week high at 1.0936 immediately following the conclusion of the ECB meeting. Officials said they could start raising rates as early as the start of the third quarter this year. French polls also suggested that incumbent President Emmanuel Macron led far-right opponent Marine Le Pen in the French general election. The Euro eased back down to settle at 1.0840 (1.0850 yesterday).
AUD/USD – The Aussie Dollar tumbled under the weight of risk-off and an overall stronger Greenback. Overnight, the AUD/USD pair traded to a high at 0.7458 before falling back to its close at 0.7370. The Aussie Battler had a choppy session of its own, hitting an overnight low at 0.7363.
GBP/USD – Sterling dipped to 1.3030 in late New York from yesterday’s opening at 1.3062, The British currency traded to a high against the US Dollar at 1.3090 before tumbling lower. Overnight low recorded for the GBP/USD pair was at 1.3015.
USD/JPY – The US Dollar had a choppy session against the Japanese currency as well. Overnight, USD/JPY traded to a high at 128.70 from its opening yesterday at 128.07. The Greenback slumped to a low at 127.80 before rallying to its New York close at 128.35.

On the Lookout: Today’s economic calendar is a busy one which highlights global manufacturing and services PMIs. Australia kicks off with its Australian Flash Manufacturing PMI for April (f/c 57.9 from 57.7 – ACY Finlogix), Australian April Flash Services PMI (f/c 56.6 from previous 55.6 – ACY Finlogix). Japan releases its March National Core Inflation Rate (y/y f/c 0.8% from 0.6% - ACY Finlogix). Japanese Headline March National Inflation rate (y/y no f/c, previous was 0.9%), Japan Jibun Bank April Flash Manufacturing PMI (f/c 55.7 from 54.1), Japanese Jibun Bank April Flash Services PMI (f/c 49 from 49.4 – FX Street). The UK starts off European data with its UK March Retail Sales report (m/m f/c -0.3% from -0.3%; y/y f/c2.8% from 7% - FX Street), UK March Core Retail Sales (m/m f/c -0.4% from -0.7%; y/y f/c 0.7% from 4.6% - ACY Finlogix). France releases its Flash April Manufacturing PMI (f/c 53 from 54.7), and French Flash April Services PMI (f/c 56.5 from 57.4), Germany April Flash Manufacturing PMI (f/c 54.5 from 56.9), German April Flash Services PMI (f/c 55.5 from 56.1), Eurozone April Manufacturing PMI (f/c 54.7 from 56.5), Eurozone April Flash Services PMI (f/c 55 from 55.6) – All forecasts courtesy of ACY Finlogix. The UK follows next with its UK Flash April Manufacturing PMI (f/c54 from 55.2), UK Flash April Services PMI (f/c 60 from 62.6) -ACY Finlogix. Canada kicks off North American reports with its Canadian February Retail Sales (m/m f/c -0.1% from 3.2%; y/y no f/c, previous was 12% - ACY Finlogix), Canadian March PPI (m/m no f/c, previous was 3.1%; y/y no f/c, previous was 16.4%). The US round up today’s reports with US Flash April Manufacturing PMI (f/c 58.2 from 58.8), US April Flash Services PMI (f/c 58 from 58) – ACY Finlogix. The UK round up today’s data releases (tomorrow morning Australian time at 9.00 am) with its April UK GFK Consumer Confidence (f/c -33 from previous -31).

Trading Perspective: The main driver for the currencies this week has been the bond yields after global central banks revised their inflation outlooks and predicted a rise in interest rates soon. The Dollar Index stayed ahead of the FX pack after Federal Reserve Head Jerome Powell called for a 50-basis point rate hike in their next meeting in May. The US 10-year bond yield rebounded overnight to close at 2.91% (2.83% yesterday). Earlier this week, 10-year US rate climbed to 2.94%, its highest level since March 2019. While other global treasury rates have also risen, the US yield climbed first, and more importantly highest. Which will keep the Greenback bid against its rivals. However, speculative long US Dollar bets are way overstretched and a corrective move lower cannot be discounted. In the current environment, the one thing that we can be certain of is that volatility will stay elevated. Happy days!

EUR/USD – The shared currency managed to steady, settling at 1.0838 in late New York from yesterday’s open at 1.0850. The EUR/USD pair was provided much needed support from a hawkish ECB. Immediate support for today lies at 1.0820 (overnight low traded was 1.0821). The next support level is found at 1.0800, followed by 1.0780. Immediate resistance can be found at 1.0870 followed by 1.0900 and 1.0930. Look for more volatile trading in a likely range today of 1.0820-1.0920. With spec shorts overextended, prefer to buy dips today.
AUD/USD – Slip-sliding away. The Aussie Dollar rallied the highest against the Greenback boosted by the higher prices of resource commodities. Broad-based US Dollar strength and weaker Asian and EMFX weighed on the Battler. Overnight the AUD/USD tumbled to a low at 0.7363 before settling to close at 0.7370. Immediate support for today lies at 0.7360 followed by 0.7330. Immediate resistance is found at 0.7400, 0.7430 and 0.7460 (overnight high traded was at 0.7458). Look for further choppy trade in a likely 0.7350-0.7450 range. Prefer to buy dips down at current levels. Spec shorts are also overcrowded.

(Source: Finlogix.com)

USD/JPY – The Greenback settled at 128.35 from 128.05 yesterday. Overnight the USD/JPY pair hit a high at 128.70 before easing to its New York close. Trading was choppy with the overnight low recorded at 127.80. Immediate support for today lies at 128.00 followed by 127.70 and 127.40. On the topside, immediate resistance lies at 128.70, 129.00 and 129.30. Look for consolidation in a likely range today of 127.80-128.80. Prefer to buy dips, another test of 130 JPY may still be on the cards.
GBP/USD – Sterling eased against the overall stronger Greenback to 1.3030 from 1.3062 yesterday. Overnight, the British currency traded to a high at 1.3090 before easing to its New York close. On the day, immediate resistance lies at 1.3060 followed by 1.3090 and 1.3120. Immediate support can be found at 1.3010 (overnight low traded was 1.3015). The next support level lies at 1.2990 followed by 1.2960. Look for Sterling to trade in a choppy range between 1.2980-1.3080. Just trade the range shag on this one today.

Happy Friday to all, have a good trading day ahead. And a top weekend.

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