Risk -Off Monday Start; Ukraine Tensions Intensify; DXY Climbs

  • Michael Moran, Senior Currency Strategist at ACY

  • 21.02.2022 03:15 pm
  • #stocks , Michael Moran is an FX veteran of 29 years and is the Senior Currency Strategist at ACY Securities. Having hung up his professional soccer boots playing for the Philippine National Football team, his FX career started in 1992 with Lloyd's Bank Group as the Chief FX Dealer. Moran's analysis of the emerging currency pairs puts him at the top of his field among his peers.

Stocks Extend Losses; Bonds Up, EMFX Haven Demand Rises

Summary: Tensions on the Ukraine border with Russia intensified over the weekend after hopes that diplomacy might resolve the crisis faded. Reports of violence in Eastern Ukraine kept strains high and weighed on sentiment. At the close of trading on Friday, global stocks extended losses with the Dow finishing down 0.59% to 34,102 (34,322). Bond prices elevated, pressuring yields. The benchmark US 10-year treasury note yield dropped 4 basis points to 1.93%. The Dollar Index (USD/DXY), which measures the value against a basket of 6 major currencies climbed 0.27% to 96.02 (95.82). The Euro, weighed by its proximity to the Eastern Europe conflict, fell 0.39% to 1.1320 from 1.1362 on Friday. Sterling fell 0.35% to 1.3580 (1.3620) after attempting to break higher earlier in the day. The Greenback finished little changed against the Japanese Yen at 114.98 (115.00 Friday). Risk and Asian/Emerging Market Currencies were mixed against the US Dollar. The Australian Dollar (AUD/USD) dipped 0.27% to 0.7180 from 0.7195 while the Kiwi (NZD/USD) edged up to 0.6695 from 0.6689. The US Dollar edged lower against the Singapore Dollar (USD/SGD) to 1.3435 (1.3450). Against the Thai Baht, the Greenback (USD/THB) rose to 32.18 from 32.10. Against the Offshore Chinese Yuan, the Dollar (USD/CNH) slid at 6.3265 from its 6.3350 opening.

Economic data released Friday saw New Zealand’s PPI Output slump to 1.4% from a previous 1.8%, missing expectations of 1.9%. NZ PPI Input dropped to 1.1% from 1.6%, missing estimates at 2.0%. Japan’s National Core CPI eased to an annual 0.2% from 0.5%, and median forecasts at 0.3%. UK Retail Sales rose 1.9% in January, higher then estimates of 1.1%, and offsetting the previous month’s drop of -4.0%. French Final CPI matched estimates at 0.3%. The Eurozone Current Account Surplus slipped to +EUR 22.6 billion from a previous +EUR 23.6 billion, lower than estimates at +EUR 24.3 billion. Canada’s Retail Sales fell to -1.8% from a previous 0.8%, but better than forecasts of -2.1%. The Eurozone Consumer Confidence Index fell to -9, against median estimates at -8. US Existing Home Sales climbed to 6.50 million from a downward revised 6.09 million, beating estimates at 6.10 million. US Conference Board Consumer Confidence Index fell to -0.3% from a previous downward revised 0.7%, and lower than median estimates at 0.2%.

  • EUR/USD – slip-sliding away, the Euro extended its fall, losing 0.9% to 1.1320 from Friday’s opening of 1.1362. Overnight low traded was at 1.1314. Broad-based US Dollar strength and the market’s risk aversion continued to weigh on the shared currency.
  • AUD/USD – The Aussie Dollar continued its grind lower, finishing at 0.7180 from 0.7195 on Friday, down 0.27%. Overnight the AUD/USD pair traded to a high at 0.7228. The Aussie Battler then broke through the 0.7200 support level to settle lower as geopolitical tensions stayed elevated. Risk aversion weighed on the Aussie Battler.
  • GBP/USD – The British currency fell under the weight of an overall strong US Dollar as tensions in the Ukraine intensified. Sterling slid to an overnight low at 1.3566 from Friday’s opening at 1.3620 before settling at 1.3580 in New York. Overnight high was at 1.3643.
  • USD/JPY – the Japanese Yen continued to attract haven bids against the Greenback. Overnight the USD/JPY pair fell to an overnight low at 114.79 before climbing to finish at 114.98 in New York. On Friday, the Greenback saw a high at 115.30.

On the Lookout: At the outset of markets in early Asian trade on Monday it was risk-off as tensions remained high on the build up of tensions between Russia and the Ukraine. Traders and investors will keep their eyes on the news releases. This week’s economic calendar is full. Today kicks off with the release of global PMIs. Australia just released its February Flash Markit Manufacturing PMI, which was at 57.6, beating a previous read at 55.1. Australia’s Flash Services PMI was also higher at 56.4 from a previous 46.6. Japan follows with its Jibun Bank Flash February Manufacturing PMIs (no f/c, previous was 55.4), Jibun Bank Flash February Services PMI (no f/c, previous was 47.6). China follows with the release of its 1Y Prime Loan Rate (no f/c, previous was 3.7%), China 5Y Prime Loan Rate (no f/c, previous was 4.6%). Germany kicks off European reports with its January PPI (m/m f/c 1.6% from 5.0%), French Flash Manufacturing PMI (f/c 55.5 from 55.5), German Flash Manufacturing PMI (f/c 59.6 from 59.8), German Flash Services PMI (f/c 53.2 from 52.2), Eurozone Flash Manufacturing PMI (f/c 58.9 from 58.7), Eurozone Flash Services PMI (f/c 52.3 from 51.1), UK Flash Manufacturing PMI (f/c 57.2 from 57.3), UK Flash Services PMI (f/c 55.6 from 54.1). There are no economic data releases from North America with the US on holiday today (Washington’s birthday).

Trading Perspective: Volatility in FX will continue in a tentative start in Asia. The general theme of strong haven FX, weaker risk, and EM currencies will keep the Greenback mixed, albeit supported. Selling pressure on asset markets will continue. Last week the prospect of tightening from the Federal Reserve lifted the Greenback against its Rivals. Expect the DXY (Dollar Index) to grind higher.

Further escalation, as our Chief ACY Analyst Clifford Bennett put it, will lead to an all-out war. We are closer to that today. Look to buy haven FX led by the Japanese Yen and the Chinese Yuan. Risk FX like the Aussie and Kiwi Dollars will stay pressurised. European currencies like the Euro and Sterling will extend their slide against the Greenback and the Japanese Yen. Most Asian and Emerging Market currencies will stay weak.

  • EUR/USD – expect this currency pair to extend its slide lower. The immediate support level at 1.1300 is at risk. A clean break of 1.1300 will see 1.1270 support tested. Immediate resistance can be found at 1.1340 and 1.1370. The next resistance level lies at 1.1400. If the 1.1300 level holds, we could see some of the weaker short bets run for cover. Expect the Euro to trade in a choppy range today between 1.1310-1.1370. Just trade the range today.
  • AUD/USD – also slip sliding away, and the speculators are not yet overly short. Downside selling pressure could see the immediate support level at 0.7160 tested. The next support level lies at 0.7130. Immediate resistance can be found at 0.7200 followed by 0.7230. Look for further volatile trade in the Battler with a likely range of 0.7140-0.7240. While the Aussie trades heavy, am neutral here. Trade the range the best strategy today.
  • USD/JPY – the Dollar finished little changed against the haven Yen at 114.98 from 115.00 Friday. On the day, expect immediate support at 114.80 (overnight low traded was 114.79). The next support level is found at 114.50, followed by 114.20. On the topside, immediate resistance lies at 115.30 and 115.60. Look for the USD/JPY to drift lower initially. Likely range today 114.50-115.50. Trade the range, the preference is to buy USD/JPY dips.

(Source: Finlogix.com)

  • GBP/USD – The British currency slid to close at 1.3580 from Friday’s opening at 1.3620. Overnight, the GBP/USD traded to a low at 1.3566. Immediate resistance for today is found at 1.3560 followed by 1.3530. Immediate resistance lies at 1.3610 and 1.3640 (overnight high traded was 1.3643). An overall stronger Greenback combined with extended risk-off will weigh on Sterling. Likely range today 1.3540-1.3640. Prefer to sell into GBP strength.

While FX traders like volatility, no on wants to see any kind of war where lives are lost. Have a good Monday and trading week ahead all.

This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

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