Euro Rebounds as Risk Steadies, Geopolitical Tensions Ease

Michael Moran, Senior Currency Strategist at ACY

16.02.2022 05:00 pm

#stocks

Crude Oil Slides, Stocks Reverse Fall, Bond Yields Stay Bid

Summary: Geopolitical tensions eased after Russia indicated that it was withdrawing some troops from the border with Ukraine. While the market’s mood improved, FX volatility remained high as some risk-off hedges were unwound. US President Joe Biden said that an invasion was still possible as he urged Russia to choose diplomacy. The Euro benefitted most, rebounding strongly to settle at 1.1362 in late New York from its overnight low of 1.1298. Oil prices slid with Brent Crude down 3.45% to US$ 93.17 (US$ 95.10). Wall Street stocks reversed their slide with the Dow rallying 1.13% to 39,945. The S&P 500 gained 1.5% to 4,467 (4,427). Bond yields however, stayed bid after data released overnight saw US January Producer Price Index rise by 1.0%, higher than median expectations at 0.5%. The 10-year US Treasury note climbed 10 basis points to 2.05% (1.95%). Germany’s 10-year Bund yield rose to 0.30% from 0.29%. The Dollar Index, (USD/DXY) a popular measure of the Greenback’s value against a basket of 6 major currencies, eased to 95.95 from 96.25. Against the Japanese Yen, the US Dollar (USD/JPY) gained modestly to finish at 115.62 (115.45). Risk leader, the Australian Dollar (AUD/USD) rallied 0.30% to 0.7152 from 0.7102 in late New York trade. Sterling (GBP/USD) settled at 1.3537 after falling to an overnight low at 1.3486 in choppy trade. Against the Asian and Emerging Market currencies, the Greenback was mostly lower. The USD/SGD pair (US Dollar-Singapore Dollar) dipped to 1.3445 (1.3465) while USD/THB (Dollar- Thai Baht) eased to 32.35 from 32.65. Against the Offshore Chinese Yuan, the US Dollar (USD/CNH) slid to 6.3370 from 6.3670 on Monday.

Data released yesterday saw New Zealand’s Visitor Arrivals drop to 16% from a previous 44%. Japan’s Preliminary Q4 GDP eased to 1.3% against estimates at 1.5% and a previous downward adjusted -0.9%. The UK’s Average Earnings Index (Wages) climbed to 4.3% from a previous 4.2%, beating economist’s expectations at 3.8%. Britain’s Unemployment Rate was unchanged at 4.1%. The Eurozone ZEW Economic Sentiment Index eased to 48.6 from 49.4, missing estimates at 54.4. Germany’s ZEW Economic Sentiment Index fared better, rising to 54.3 from 51.7, but lower than expectations of 55.1. The Eurozone’s Flash GDP (q/q) matched expectations at 0.3%. Canada’s Housing Starts fell to 231,000 from 238,000, lower than estimates at 244,000. US January Headline PPI rose to 1.0% from 0.2%, beating forecasts at 0.5%. The US Core Producer Price Index climbed to 0.8% in January, up from a previous 0.5%, and higher than estimates at 0.5%.

EUR/USD – the shared currency had another choppy session initially easing to 1.1304, overnight lows after opening at 1.1335. The EUR/USD pair then soared to a high at 1.1368 before settling at 1.1362. Short covering continued to be the main support for the shared currency.
AUD/USD – the Aussie Battler benefitted from the market’s improved risk appetite and speculative short covering. The AUD/USD pair rebounded from its 0.7102 opening to settle at 0.7152. Overnight high traded was at 0.7156. The RBA stuck to its line of wanting to see further rises in inflation before hiking rates, most analysts saw a likely rate rise in June rather than earlier predictions of August.
GBP/USD – Improved market risk sentiment saw the British Pound settle at 1.3535 after its sell-off to an overnight low at 1.3486. While selling pressure on Sterling remained strong, stretched speculative short GBP/USD positions were supporting the downside.
USD/JPY – against the Japanese Yen, the US Dollar edged higher to 115.62 from 115.45 yesterday. Overnight, the USD/JPY pair soared to a high at 115.88 before easing at the close. The rebound in the US 10-year bond yield continues to buoy this currency pair.

On the Lookout: Markets will continue to closely monitor the Russia-Ukraine border situation. Any further easing of tensions will improve risk appetite. Today’s economic data calendar picks up.

Earlier the US released its Treasury Department Long Term Purchases (Securities) which eased to USD 114.5 billion in January from a previous USD 137.9 billion. However, it beat economist’s expectations at USD 56.9 billion. Japan kicks off Asian reports with its Reuters Tankan Index for February (no f/c, previous was 17). Australia follows with its M1 Leading Index (no f/c, previous was 0.0%), Australia’s Westpac Leading Index (no f/c, previous was -0.03%). China follows with its January CPI (m/m f/c 0.5% from -0.3%; y/y f/c 1% from 1.5% - ACY Finlogix), and China January PPI (y/y f/c 9.5% from 10.3% - ACY FInlogix). The UK starts off European data with its UK January Headline CPI (m/m f/c -0.2% from 0.5%; y/y f/c 5.4% from 5.4% - ACY Finlogix), UK Core CPI (m/m f/c -0.4% from 0.5%, y/y f/c 4.3% from 4.2%), UK January PPI Input (m/m f/c 0.9% from -0.2%; y/y f/c 13.1% from 13.5%), UK PPI Output (m/m 0.6% from 0.3%; y/y f/c 9.1% from 9.3% - ACY Finlogix). The Eurozone rounds up European data with its Eurozone Industrial Production for December (m/m f/c 0.3% from 2.3%; y/y f/c -0.5% from -1.5%). Canada releases its January Manufacturing Sales data (f/c 0.6% from 2.6%). Finally, the US kicks off North American reports with its January Retail Sales (m/m f/c 2% from -1.9%; y/y no f/c previous was 16.9%), US January Core Retail Sales (excluding Automobiles – m/m f/c 0.8% from -2.3%). Canada follows with its January Headline CPI (m/m f/c 0.6% from previous -0.1%; y/y f/c 4.8% from 4.8% - ACY Finlogix). Canada’s January Core CPI (y/y no f/c, previous was 4%). The US rounds up the day’s data with its US January Industrial Production (m/m f/c 0.4% from -0.1%; y/y no f/c, previous was 3.7%), US January Capacity Utilisation (f/c 76.8% from previous 76.5% - ACY Finlogix), US Manufacturing Production (m/m f/c 0.3% from -0.3%; y/y no forecast, previous was 3.5%). The US Federal Reserve releases its latest FOMC meeting minutes (6 am Sydney, 17 Feb, Thursday).

Trading Perspective: The one thing markets can expect in the next 24 hours is elevated volatility. The combination of an uncertain geopolitical situation, a heavy economic data calendar, and the FOMC’s release of its latest meeting minutes will ensure choppy conditions. The Dollar’s upward trend was reversed overnight on market’s improved mood. Expect early Asia to be content with consolidation within recent trading ranges. The risk for the Greenback is lower should Russia continue to unwind its recent aggressive moves on its border with the Ukraine. Keep those tin helmets on though because uncertainty still prevails.

EUR/USD – Expect the Euro to start off on a firm note with the overnight high at 1.1368 at risk. Immediate resistance follows at 1.1400 and 1.1430. On the downside, a deterioration in risk appetite will see 1.1330 and possibly 1.1300 tested. The next support level is found at 1.1270. Look for further choppy trade in a likely range of 1.1280-1.1380. Just trade the range shag, there’s money to be made.

(Source: Finlogix.com)

AUD/USD – further short covering on the Aussie is possible following the less than hawkish rhetoric from the RBA on Tuesday. The Aussie Dollar closed at 0.7152 after trading to a low at 0.7102. Immediate resistance lies at 0.7160 (overnight high traded was 0.7156) followed by 0.7190 and 0.7210. Immediate support can be found at 0.7120 followed by 0.7090. Look for the Aussie to trade in a choppy range between 0.7090-0.7170. Prefer to sell rallies to 0.7200.
GBP/USD – Sterling settled at 1.3537 in a volatile session offshore. The British Pound tumbled to an overnight low at 1.3486 before rebounding to its New York close. Overnight high traded was at 1.3567. Today sees the release of UK CPI and PPI reports. Immediate support lies at 1.3500 followed by 1.3470. On the topside, immediate resistance can be found at 1.3570 followed by 1.3600. Looking for further choppy trade in a likely range today of 1.3480-1.3580. Just trade the range on this one too, there’s 100 pips in it.
USD/JPY – The Greenback rebounded against the Japanese Yen to settle at 115.62 from 115.45 yesterday. Higher US bond yields and a better risk appetite supported this currency pair. Immediate resistance lies at 115.90 (overnight high traded was 115.88). The next resistance level is found at 116.20 and 116.50. On the downside, immediate support can be found at 115.30 (overnight low traded was 115.26). The next support level lies at 115.00 and then 114.70. Look for consolidation in the USD/JPY pair today between 115.10-116.10.

Happy trading all, have a good Wednesday ahead.

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