GBP and EUR rebound most, DXY extends fall, equities rally

USD/JPY Rises, Asia/EMFX Climb on Upbeat Risk Sentiment

Summary: The Euro (EUR/USD) and the British Pound (GBP/USD) outperformed, extending their rallies as upbeat market sentiment boosted equities and weighed on the US Dollar (USD/DXY). Sterling soared to finish at 1.2492 from 1.2325 yesterday following the release of stellar UK Employment data. Britain’s Unemployment Rate dipped to 3.7% in March, its lowest level since 1974. The Euro (EUR/USD) jumped to finish at 1.0545 in late New York trade, up 1% from yesterday’s 1.0437. ECB Governing Council member Klaas Knot supported a quarter-point increase but said that a 50-basis point rate hike in July may be justified if data showed inflation worsening. Growing speculative Euro short bets ran to cover positions after the shared currency failed to break below 1.0432 (overnight low). Fed Chair Jerome Powell reiterated that the US central bank is comfortable with 50 bps rate hikes. The Dollar Index (DXY), a popular measure of the Greenback’s value against a basket of six major currencies, slumped 0.85% to 1.0330 (1.0418 yesterday). Improved risk appetite lifted the Dollar Yen pair (USD/JPY) to 129.42 from 129.00. The Australian Dollar (AUD/USD) rallied to 0.7027 from 0.6975 yesterday. The Greenback eased against most Asian and Emerging Market currencies. USD/CNH (US Dollar-Offshore Chinese Yuan) tumbled to 6.7450 from 6.7995 while USD/THB dipped to 34.55 (34.75). Wall Street stocks extended their rally. The DOW climbed 1.52% to 32,672 (32,227) while the S&P 500 was last at 4,095 from 4,010 yesterday.

Data released yesterday saw UK Average Earnings Index climb to 7% from a previous upward revised 5.6%, beating median estimates at 5.4%. The Eurozone Flash Q1 GDP rose to 0.3%, higher than forecasts at 0.2%. US April Headline Retail Sales dipped to 0.9% from March’s upward revised 1.4% (from 0.5%), and median forecasts at 1.0%. Core US Retail Sales in April though climbed to 0.6%, against expectations of 0.4%. March’s Core Sales were revised higher to 1.4% from 0.5%. The US April Capacity Utilisation Rate climbed to 79.0% from 78.2%. US Industrial Production rose in April to 1.1%, up from March’s 0.9%, beating median estimates at 0.4%.

• EUR/USD – The shared currency continued its reversal from Monday’s low at 1.0385, soaring to close at 1.0545. Overnight low traded for the shared currency was at 1.0432. Growing speculative short bets have continued to unwind their positions, postponing a move to parity, which many traders are still looking for. Overnight high traded was at 1.0556.
• GBP/USD – Sterling benefitted from the better-than-expected UK Employment report and overall weaker US Dollar. Overnight, the GBP/USD pair traded to a high at 1.2499 before settling in late New York at 1.2492, up 1.25%. Today sees the release of UK inflation data which will move the British currency in more choppy trade.
• AUD/USD – the Aussie Battler gained 0.77% against the Greenback to close at 0.7027 from 0.6975 yesterday. Overnight, the AUD/USD pair traded to a high at 0.7040 while the overnight low traded was at 0.6972. The rally in Asian and EMFX against the US Dollar also buoyed the Aussie Battler.
• USD/JPY – the Greenback finished higher against the Yen to 129.42 (129.00) yesterday despite the lower finish of the Dollar Index (DXY). The risk-on sentiment, as well as the widening US and Japanese yield gap boosted the USD/JPY pair. The US 10-year bond yield rose 11 basis points to 2.99% while Japan’s 10-year JGB rate was up 1 basis point to 0.24%.

On the Lookout: Today’s economic calendar kicks off with Japan’s Preliminary Q1 GDP report (q/q f/c -0.4% from a previous 1.1% - ACY Finlogix), Japanese March Industrial Production (m/m f/c 0.3% from 2%; y/y no f/c, previous was 0.5% - ACY Finlogix) and Japanese March Capacity Utilisation (m/m no f/c, previous was 1.5%). Australia follows next with its Australian Wage Price Index (q/q f/c 0.8% from 0.7%; y/y f/c 2.5% from 2.3% - ACY Finlogix). China releases its April House Price Index (y/y no f/c, previous was 1.5%). The UK starts off European data with its April Inflation Rate (m/m f/c 2.6% from 1.1%; y/y f/c 9.1% from previous 7% - ACY Finlogix), UK April Core Inflation Rate (y/y f/c 6.2% from 5.7%), UK April PPI Output (y/y no f/c previous was 12%), UK April PPI Input (y/y 19% from previous 19.2% - ACY Finlogix). The Eurozone follows next with its April Final Inflation Rate (m/m f/c 0.6% from 2.4%; y/y f/c 7.5% from 7.4%), Eurozone April Core Inflation Rate (y/y f/c 3.5% from previous 2.9% - ACY Finlogix). Canada releases its April Inflation Rate (m/m f/c 0.5% from 1.4%; y/y f/c 6.7% from 6.7% - ACY Finlogix), Canadian April Core Inflation Rate (y/y f/c 5.4% from 5.5% - ACY Finlogix). The US rounds up today’s economic data releases with its April Housing Starts (f/c 1.765 million from 1.793 million – ACY Finlogix) and US April Building Permits (f/c 1.812 million from 1.870 million – ACY Finlogix).

Trading Perspective: The Greenback’s reversal lower resulted from overcrowded long speculative USD bets reducing their exposure. It began with the EUR/USD pair where traders and analysts have been the most bearish. The Euro looks headed to parity but with the market overcrowded we may see some consolidation between the 1.03-1.08 levels first. The Dollar Index (DXY) extended its correction lower overnight, down 0.85% to 103.30 (104.20 yesterday). However, comments from Fed Chair Jerome Powell which reiterated his determination to address high inflation enabled the Greenback to regain ground against its Rivals. Overnight the one factor that stayed constant in all FX pairs was the elevated volatility. We can expect more of the same in the days ahead with economic data, central bank rhetoric, and continued tensions between the Europe and Russia after its invasion of Ukraine dominating trade.

• EUR/USD – The shared currency rebounded following remarks by ECB Governing Council member Klaas Knot who said that a 50 basis-point rate increase in July may be justified if data showed inflation worsening. This enabled the Euro to finish 1% up against the Greenback to 1.0545. Overnight low traded was at 1.0432. Today, immediate support is found at 1.0510 followed by 1.0480 and then 1.0450. Immediate resistance lies at 1.0560 (overnight high traded was 1.0556) followed by 1.0590 and 1.0620. Look for more choppy trade in a likely range today of 1.0470-1.0570.
• GBP/USD – Sterling kicked higher versus the US Dollar boosted by upbeat UK Employment data. Overnight the GBP/USD pair traded to a high at 1.2499 before settling to its close at 1.2492. Today’s immediate resistance can be found at 1.2500 and 1.2530. Immediate support can be found at 1.2450, 1.2420 and 1.2390. Expect another roller coaster ride in this currency pair, likely range 1.2410-1.2510.

(Source: Finlogix.com)

• AUD/USD – The Aussie Battler rebounded after holding its own from strong selling interest which was generated by growing bearish sentiment. The Australian Dollar finished at 0.7027 in New York, up 0.77%. Overnight, the AUD/USD pair traded to a low at 0.6972. For today, immediate support lies at 0.7000 followed by 0.6970 and 0.6940. Immediate resistance can be found at 0.7040, 0.7070 and 0.7100. Look for a choppy day in the AUD/USD pair as well, likely range 0.6980-0.7080.
• USD/JPY – Against the Yen, the Dollar rallied to 129.42 from 129.00. While the move was subdued it was against the overall trend of the Greenback. Growing interest rate differentials favoured the US Dollar as well as improved investor risk sentiment. Immediate resistance today lies at 129.80 followed by 130.10 and 130.40. Immediate support can be found at 129.10, 128.80 and 128.50. Likely range today 129.00-130.00.

Have a good trading day all, keep ahead of those choppy moves… Tin helmets on!