EUR Tumbles, JPY Soars on Russia-Ukraine Conflict, Inflation Angst

Michael Moran, Senior Currency Strategist at ACY

14.02.2022 04:30 pm

#stocks

Risk-Off, AUD Slumps; Oil Prices Rally; US Bond Yields, Stocks Drop
Summary: “Just another manic Monday, and it’s taking me so long just to figure out what I’m going to write.” Straight out of the Bangles tune way back in 1986 which is ringing in my head this morning. Welcome to a new week in FX land. The prospect of rising inflation which saw US bond yields jump on Friday was totally trumped by growing fears of an outright war between Russia and Ukraine over the weekend. Which saw those yields drop right back to where they started from. The benchmark US 10-year treasury bond yield dropped 10 basis points to 1.94% (2.04% Friday). It was risk-off in the FX and equity space while Oil prices rocketed higher. Brent Crude Oil settled at US$ 95.10, from US$ 91.45 Friday, up over 4%. In the currency markets, the Euro already hit by strong US inflation, tumbled further on the continent’s proximity to the Russian-Ukraine conflict. In early Asia this morning, EUR/USD opens at 1.1335, down 0.72% from 1.1450 Friday morning. The British Pound, buoyed by the UK’s oil producing status, was little changed against the US Dollar at 1.3560 (1.3570 Friday). The rise in oil prices also benefitted the Canadian currency with the USD/CAD little changed against the overall stronger Greenback at 1.2730. Risk aversion saw the US Dollar fell 0.79% against the haven sought Japanese Yen to 115.40 from 115.95. Meantime, Australian Dollar slumped against the Greenback to 0.7135 from 0.7170 while the Kiwi (NZD/USD) fell to 0.6645 (0.6678). The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies was up 0.50% to 96.02 (95.56). Much of the move in the DXY was due to the tumble in the Euro, which has about 60% weight in the Dollar Index. The US Dollar closed mostly higher against the Asian and Emerging Market currencies. USD/SGD was last at 1.3467 (1.3450) while the USD/THB (US Dollar-Thai Baht) pair edged up to 32.73 from 32.65 Friday. Against the Offshore Chinese Yuan, the Dollar (USD/CNH) rose to 6.3675 from 6.3625.
Wall Street stocks prices dropped. The DOW ended 1.2% lower to 34,800 (35,245) while the S&P 500 settled at 4,425 from 4,505, down 1.66%.
Data released on Friday saw New Zealand’s Inflation Expectations climb (q/q) climb to 3.27% from a previous 2.96%. Germany’s Final CPI in January matched expectations and a previous rise of 0.4%. UK Preliminary q/q GDP eased to 1.0% from a previous 1.1% as well as forecasts of 1.1%. UK January m/m GDP bettered expectations with a -0.2% print against -0.5%. UK January Industrial Production (m/m) rose to 0.3% bettering forecasts at 0.1% while UK Manufacturing Production matched forecasts at 0.2%. Previous readings in both UK Industrial and Manufacturing Production were revised lower to 0.7% from 1.0% and 1.1% respectively. Switzerland’s January CPI (m/m) rose to 0.2%, against a previous -0.1%, beating estimates at 0.0%. The US University of Michigan Consumer Sentiment Index fell to 61.7 in January, missing estimates at 67.2 and lower than a previous downward revised 67.2 reading.

EUR/USD – Risk aversion in Europe pushed the EUR/USD pair down to finish at 1.1335 from its Friday open at 1.1450. Latest developments on the current Russia-Ukraine conflict pointed to an escalation anytime now. While Russia has continuously denied this, the rest of the world remain skeptical. Overnight the Euro plunged to a low at 1.1329, settling not far from its lows in Asia this morning.
AUD/USD – the risk leading Aussie Battler slumped against the US Dollar to 0.7135 at the close of trade in New York on Friday. Overnight, the AUD/USD pair hit a low at 0.7108. While the prices of precious metals (Gold/Silver) were higher, Copper slid 3% lower which weighed on the Australian Dollar.
USD/JPY – Despite the Tokyo holiday on Friday, there were investors and traders flocked into the haven darling Japanese Yen as the prospects of a Russian-Ukraine conflict threatened the rest of the globe. Some US officials said Russian leader Vladimir Putin could invade Ukraine at any time. The USD/JPY pair ended at 115.40 from 115.95 Friday. Overnight low traded was at 115.01.
GBP/USD – Due to its oil status (North Sea Oil) the British currency settled modestly lower against the overall stronger Greenback. At the close of New York on Friday, the GBP/USD pair settled at 1.3560 from 1.3570. Overnight the British Pound traded to a high at 1.3610 before easing to its New York close. While the UK does benefit from its North Sea oil revenues, Britain’s domestic energy mix has a far higher dependency than the other North Sea oil producer, Norway.

On the Lookout: Today’s economic calendar is light. The week picks up the release of Australia’s RBA Monetary Policy Meeting minutes tomorrow as well as the Eurozone and Germany’s ZEW Economic Sentiment. New Zealand kicked off this morning with its New Zealand January BusinessNZ Services Index which dropped to 45.9 from a previous 49.8. New Zealand’s Food Price Index (m/m) rose to 2.7% from 0.6%. China is expected to release its Foreign Direct Investment (year to date/year). Switzerland releases its January PPI report (f/c 0.2% from a previous -0.1%). Central bank speakers scheduled are Fed FOMC Member James Bullard and ECB President Christine Lagarde. Both will be making speeches at different events. Tomorrow sees the release of Australia’s RBA Meeting Minutes, UK Employment, and the Eurozone and German ZEW Economic Sentiment Index’s. Early Wednesday sees US Headline and Core PPI. Wednesday also sees UK and Canadian CPI reports later in the day. Early Thursday sees US Headline and Core Retail Sales and the release of the Fed’s FOMC Meeting Minutes, and last, but not least, Australia’s Employment data. The G20 has its Meetings on Thursday and Friday. A busy week ahead indeed.
Trading Perspective: Its another week or risk-on, risk-off ahead of us. Markets will be focussed on the Russia-Ukraine conflict which is escalating. A phone call between US President Joe Biden and Russian leader Vladimir Putin on Saturday has ended, leaving markets on high alert in early Asia this morning. Despite the risk aversion, global central banks are moving toward raising rates which will just add to the volatility in all markets. Expect risk and Emerging Market currencies, the Euro, and Stocks to be pressurised in Asia today.

EUR/USD – The Euro remains on the back-foot due its geopolitical tensions rise between Russia and the Ukraine. The shared currency opens in Asia this morning at 1.1335, down 0.72% from its Friday open at 1.1450. Overnight low traded was at 1.1329 with immediate support at 1.1300 at risk. The next support level is at 1.1270. On the topside, immediate resistance lies at 1.1370, 1.1400 and 1.1430. Look for a choppy session in the Euro today with the likely range between 1.1300-1.1400. Trade the range, there’s 100 pips in there.

(Source: Finlogix.com)

AUD/USD – the risk-leading Aussie Dollar reversed its gains after climbing to last week’s high at 0.7249. The AUD/USD pair slumped to a low at 0.7108 before closing in New York at 0.7135. On Friday the Aussie opened in Asia at 0.7170. Immediate support today lies at 0.7105 followed by 0.7085. Immediate resistance can be found at 0.7160 and 0.7190. Look for the Aussie to trade in a volatile range today of 0.7075-0.7175.
USD/JPY – slip sliding away, look for a choppy start to the Japanese currency. On Friday, Tokyo was closed for a holiday and Japan Inc will be primed for action today. The Greenback closed at 115.40 from its 115.95 open on Friday. Overnight low traded for the USD/JPY pair was at 115.01 while the overnight high recorded was at 116.17. That’s huge. For today, immediate support lies at 115.00 followed by 114.70. Immediate resistance lies at 115.70, 116.00 and 116.30. Look for a choppy one today between 115.10-116.10 with Japanese importers likely to support the bid.
GBP/USD – Sterling finished modestly lower against the Greenback to 1.3560 from 1.3570. Overnight low traded for the British currency was at 1.3507. Immediate support for Sterling today can be found at 1.3530, 1.3500 and 1.3470. On the topside, we can find immediate resistance at 1.3600, 1.3630 and 1.3660. Look for a choppy day on the GBP/USD pair with a likely range trade between 1.3500-1.3600. Prefer to sell Sterling on rallies, the US Dollar will remain in demand in the current environment.
As Michael Buffer, world renown boxing ring announcer always says before a big bout, “Let’s Get Ready to Rumble.” Happy Monday, happy days, and happy trading all. Have a good and productive week ahead.

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