Dollar explodes higher, Powell signals more rate rises

Summary: The Dollar Index exploded higher after Fed Chair Jerome Powell signalled that he is prepared to act to deal with surging inflation. USD/DXY, which measures the value of the Greenback against a basket of 6 major currencies, jumped 1.3% to 97.29 (96.55 yesterday), and settling at 97.20. The Euro plunged 0.87% to 1.1143 from 1.1232, given the divergence between the Fed and ECB as well as rising tensions in Russia. Sterling dropped 0.63% to 1.3382 (1.3445) against the broadly based stronger Greenback with additional pressure on Boris Johnson to resign following controversial parties at the PM’s official residence. Resource currencies led by the Australian Dollar extended their drop which began this week. In volatile trade, the AUD/USD pair plummeted to an overnight and near 2-month low at 0.7024 before closing at 0.7030 in New York. The Aussie opened at 0.7088 yesterday and was at 0.7180 at the start of the week. The Kiwi (NZD/USD) slid 1.2% lower to 0.6577 (0.6628 yesterday). Against the Japanese Yen, the US Dollar rallied 0.52% to 115.30 (114.57). The Greenback finished with strong gains versus the Asian and Emerging Market currencies. USD/THB (Dollar-Thai Baht) rose 0.54% to 33.30 (33.15) while USD/CNH (Dollar- Offshore Chinese Yuan) was up 0.5% to 6.3700 (6.3440). The CBOE VIX Volatility Index settled at 30.49 after trading to a one-year peak at 31.96 yesterday, and 28.85 Monday.

Wall Street stocks steadied after trading lower this week. The DOW finished at 34,057 (33,965 yesterday) while the S&P 500 was last at 4,310 from 4,322. After a choppy week of trading, global bond yields finished mixed. The benchmark US 10-Year Treasury Bond Yield slumped 6 basis points to 1.81%. Germany’s 10-Year Bund yield settled at -0.06% (-0.08%).

Data released yesterday saw New Zealand’s Q4 CPI climb to 1.4%, beating estimates at 1.3%. Switzerland’s Trade Surplus slipped to +CHF 3.69 billion missing forecasts at +CHF 5.23 billion. Spain’s Unemployment Rate eased to 13.3% from 14.6% previously and better than estimates at 14.2%. UK CBI Realised Sales Index rose to 28 from 8, beating forecasts at 11. US Advance Q3 GDP jumped to 6.9% from a previously upward revised Q2 GDP of 2.3% (from 2.0%) and beating median expectations at 5.3%. US January Durable Goods Orders matched forecasts at 0.4%. Core Durable Goods Orders in January slid to -0.9% against forecasts at -0.6%. US Weekly Unemployment Claims matched estimates at 260,000 and a better than a previous 290,000. US December Pending Home Sales fell to -3.8%, missing expectations of -0.9%, and a previous -2.3%.

EUR/USD – Slip-sliding away, the Euro fell under the weight of the strengthening Greenback to finish at 1.1143, down 0.87% (1.1232 yesterday). The shared currency broke through the 1.1200 support level trading to an overnight low at 1.1131 before stabilising to its NY close.

AUD/USD – The Aussie Dollar was battered on the broad-based Greenback strength, falling further toward the 0.7000 cent support level. Overnight the AUD/USD pair tumbled to a low at 0.7024 before settling at 0.7030 in late New York. A fall in Gold and Silver also weighed on the Battler. Spot Gold slid 1.5% to USD 1,794.3 (USD 1,817). Silver plunged 3.9% to USD 22.67 from USD 23.40 yesterday.

USD/JPY – Against the Japanese Yen, the US Dollar rallied 0.52% to finish at 115.30 from 114.57 yesterday. Overnight the USD/JPY pair hit an overnight and two-week high at 115.49. The overnight low traded was at 114.47 in choppy fashion.

GBP/USD – Sterling traded heavy under the weight of the Greenback amidst mounting pressure for UK PM Boris Johnson to resign. GBP/USD closed at 1.3382 from yesterday’s 1.3445 opening. Overnight the British currency was pounded to a low at 1.3358.

On the Lookout: Today’s economic calendar is a busy one for a Friday. Data kicks off with Tokyo Headline and Core CPI for January (H/L no f/c, previous was 0.8%; Core previous was 0.5%, forecasts are at 0.3%) – ACY Finlogix. Australia follows with its Quarterly and Annual PPI data (q/q no f/c, previous was 1.1%; y/y no f/c, previous was 2.9%). France starts off European reports with its Preliminary GDP Growth Rate (q/q f/c 0.5% from 3.0%; y/y no f/c, previous was 3.3% - ACY Finlogix). Germany follows with its Import Prices (f/c 2% from 3%). Germany Flash GDP follows (q/q f/c -0.3% from 1.7%; y/y f/c 1.8% from 2.5% - ACY Finlogix). The Eurozone releases its January Consumer Confidence Index (f/c -8.5 from a previous -8.4). The US rounds up today’s economic data releases with its Employment Cost Index (q/q f/c 1.2% from 1.3% - ACY Finlogix); US PCE Price Index for December (m/m no f/c, previous was 0.6%; y/y no f/c, previous was 5.7%). US December Personal Income (m/m f/c 0.5% from 0.4%) and US December Personal Spending (m/m f/c -0.6% from 0.6%) – ACY Finlogix. The US Michigan Consumer Sentiment Index (Final) for January (f/c 68.7 from 70.6 – ACY Finlogix) is the last report.

Trading Perspective: Jerome Powell has given the US Dollar fresh legs after he signalled more rate hikes to come. Today we can expect the Greenback to stay supported against its rivals. Traders will be content to keep within ranges after a volatile week in FX. Next week is huge with the RBA, BOE and ECB monetary policy meetings, US ISM PMI’s and Employment report, New Zealand Jobs report the highlights. The short-term trend for the Dollar is higher but being a Friday, we can expect profit taking to stem any strong surges. Speculators have added to their net long US Dollar bets which will also limit gains today.

EUR/USD – The shared currency sliced through the 1.1200 support level, tumbling to an overnight and June 2020 low at 1.1131 before stabilising to close at 1.1143. Current European political uncertainty (Russia-Ukraine), Italy’s failure to elect a president, and overall US Dollar strength will weigh on the EUR/USD pair. Immediate support for today lies at 1.1130 followed by 1.1100. A clean break of 1.1100 could see the psychological 1.1000 tested. Immediate resistance lies at 1.1170, 1.1200 and 1.1230. Look for the Euro to trade heavy in a likely range today of 1.1120-1.1220.

(Source: Finlogix.com)

AUD/USD – Slip-sliding away, the Aussie Battler finds itself struggling to keep its head above the 0.70 cent support level. Overnight the AUD/USD pair plummeted to a low at 0.7024 before settling at 0.7030. The Australian Dollar opened at 0.7090 yesterday. Immediate support today lies at 0.7020 followed by 0.7000 and 0.6970. On the topside, immediate resistance is found at 0.7070, 0.7100 and 0.7130. Look for choppy trade in a likely range today of 0.7010-0.7110. Am a bit weary to push this lower, trade the range is best today.

GBP/USD – The Pound is sinking, sang Paul McCartney’s lyrics in his 1982 tune from his Tug of War album. Sterling certainly traded that way, sinking to an overnight low at 1.3358 from its opening of 1.3445 yesterday. Political pressures also weighed on the British Pound. For today immediate support is found at 1.3360 followed by 1.3330. Immediate resistance lies at 1.3410 and 1.3440. Look for Sterling to trade a range of 1.3350-1.3450 today. Sell rallies.

USD/JPY – The Dollar’s rally against the Japanese Yen saw an overnight and near two-week high at 115.49 after trading in a range between 113.50 and 115.00. Yesterday the USD/JPY pair opened in Asia at 114.58. Despite lower US bond yields overnight, the statement from Jerome Powell and the Fed’s determination to tackle inflation boosted this currency pair. Immediate resistance lies at 115.50 followed by 115.80 and 116.10. On the downside, immediate support can be found at 115.00, 114.70 and 114.40. Look for the USD/JPY to stay bid in a likely range today of 114.70-115.70.

Expect more choppy moves ahead. It’s also Friday. Happy Friday and trading all, top weekend too.