JPY, CHF climb, AUD, GBP fall, CNH up, VIX Index jumps

Stocks Slide, Yields Dip, Choppy Trade Set to Continue

Summary: Currencies ended a volatile week of trading on Friday with mixed finishes as traditional correlations were set aside. The two main catalysts for the FX markets, prominent since the start of this year have been the changing nature of Fed monetary policy amidst rising inflation and the current spread of the Omicron variant. Global treasury yields dropped sharply while Wall Street stocks extended their slide as risk aversion dominated trade. The CBOE VIX Index soared 35.2% higher to finish at 28.85 (25.59 Friday). The Dollar Index (USD/DXY), a popular gauge of the Greenback’s value against a basket of 6 major currencies, dipped 0.10% to 95.62 from 95.77. Best performing FX went to the haven sought Swiss Franc and Japanese Yen. The Greenback continued to fall against the Japanese Yen, settling 0.36% lower to 113.65 (114.20). Against the Swiss Franc, the US Dollar slid 0.72% to 0.9120 from 0.9172 Friday. The Euro (EUR/USD) rallied 0.19% against the US Dollar to close at 1.1345 from 1.1303. However, it was not a one-way street lower for the Greenback. The British Pound (GBP/USD) finished at 1.3555 from 1.3595, it’s lowest finish in 2 weeks. Despite ongoing expectations of a Bank of England rate hike on 3 February, growing pressure on Boris Johnson to resign has weighed on Sterling. UK economic data released on Friday were also disappointing. Risk leader, the Australian Dollar (AUD/USD) tumbled 0.79% to 0.7180 from Friday’s 0.7222 while the Kiwi (NZD/USD) slumped to 0.6715 (0.6775). Against the Canadian Dollar, the Greenback (USD/CAD) rallied 0.44% to 1.2580 (1.2510). The US Dollar finished mixed against the Asian and Emerging Market currencies. Against the Offshore Chinese Yuan (USD/CNH), the Greenback was last at 6.3415 from 6.3455. USD/THB (US Dollar-Thai Baht) rose modestly to 33.95 from 32.85 Friday while the USD/SGD pair (US Dollar-Singapore Dollar) settled at 1.3450 (1.3460).

The benchmark US 10-year bond yield slumped 7 basis points to 1.76% (1.73%). Germany’s 10-year Bund rate was down four basis points to -0.07% (-0.03%). The UK Ten-year Gilt yield fell 5 basis points to 1.17% (1.22% Friday). Australia’s 10-year Bond rate tumbled 8 bp to 1.91% (1.99% Friday).

The DOW extended its slide, settling at 34,227 (34,703). The S&P 500 settled at 4,360 (4,483). Japan’s Nikkei Index tumbled 1.32% lower to 27,150 from 27,680 Friday.
Data released yesterday saw New Zealand’s Visitor Arrivals in January slump to 44% from 59.6%. Japan’s National Core CPI dipped to 0.5% against expectations of 0.6%, and a previous 0.5%. UK GFK Consumer Confidence slid to -19.0 in January from -15 in December. UK Retail Sales slumped -3.7%, from a downward revised 1.0% (initially 1.4%), and lower than expectations of -0.6%. Canada’s Retail Sales fell to 0.7%, missing median estimates of 1.2% and a previous downward revised 1.5% (from 1.6%). The Eurozone Consumer Confidence Index matched forecasts at -9. The US Conference Board’s Leading Index matched expectations at 0.8%.

• EUR/USD – The Euro, under pressure for most of last week, survived relentless selling pressure to finish at 1.1345, from Friday’s 1.1303 opening. The shared currency was also higher against the beleaguered British Pound (EUR/GBP), climbing 0.49% to 0.8368 (0.8312).
• AUD/USD – the Aussie Dollar tumbled 0.79% against the US Dollar (AUD/USD) to 0.7180 from 0.7222 weighed by the market’s risk-off stance. In choppy trade, the Aussie Battler traded to an overnight high at 0.7219 before sliding at the New York close. The overnight low recorded was at 0.7159.
• GBP/USD – the British Pound also had a volatile session, finishing at 1.3555, down 0.45% from Friday’s open at 1.3595. Sterling hit an overnight peak at 1.3602 as markets began to price in a greater chance of a BOE rate hike in their policy meeting next week (3 February).
• USD/JPY – against the haven sought Japanese Yen, the US Dollar wilted to finish 0.36% lower to 113.65 from 114.20 on Friday. Lower US treasury bond yields also weighed on the Greenback with the benchmark 10-year note rate down 7 basis points to 1.76%. Last week the USD/JPY pair hit a high at 115.05.

On the Lookout: Another week, another Dollar. Today’s economic calendar sees the release of the first set of global PMIs for January. Australia kicked off with its Markit Manufacturing PMI, down to 55.3 from a previous 57.7. Australia’s Flash Services PMI in January eased to 45 from 55.1. No forecasts were given. Australia’s Markit Composite Flash PMI dipped to 45.3 from 54.9.  Japan follows next with its Jibun Bank Flash Manufacturing PMI (f/c 55.0 from 54.3), Japanese Jibun Bank Flash Services PMI (no f/c, previous was 52.1), Japanese Jibun Bank Composite Flash PMI (no f/c, previous was 52.5). European data starts off with French Markit Manufacturing Flash PMI (f/c 54.5 from 55.8), French Market Services PMI (f/c 55.3 from 55.7), French Composite PMI (f/c 54.5 from 55.8) – ACY Finlogix. Germany follows with its Markit Manufacturing PMI for January (f/c 57 from 57.4), German Markit Services PMI (January f/c 48 from 48.7), German Composite PMI (January f/c 49.2 from 49.9). The Eurozone follows with its Markit Manufacturing PMI for January (f/c 57.5 from 58.0), Eurozone Markit Services PMI for Jan (f/c 52.2 from 53.1), Eurozone Composite Jan PMI (f/c 52.6 from 53.3). The UK rounds up Europe with its UK Markit Manufacturing PMI for Jan (f/c 57.9 from 57.9), UK Market Services PMI (f/c 54.8 from 53.6), UK Composite PMI for Jan (f/c 55 from 53.6). The US follows with its Chicago Fed National Activity Index for Dec (no f/c, previous was 0.37). Canada releases its December Preliminary Manufacturing Sales data (no f/c, previous was 2.6%. Finally, the US releases its Markit Manufacturing Flash PMIs for Jan (f/c 55.0 from 57.6, US Markit Non-Manufacturing PMI (f/c 56.7 from 57.7) and US Markit Composite PMI (no f/c, previous was 57). All data and forecast sourced from ACY Finlogix.

Trading Perspective: While the DXY (Dollar Index) gained marginally, it was mixed against its various Rivals. A fall of 7 basis points in the US 10-year bond yield in earlier days would’ve seen a marked fall in the Greenback. Global stock markets extended their slide which created a mostly risk-off stance from FX. The Australian, New Zealand and Canadian Dollars were all lower while the Japanese Yen and Swiss Franc outperformed. However, the Chinese Offshore Yuan and other Asian and Emerging Market currencies finished higher against the Greenback. The USD/CNH pair closed at its lowest this year at 6.3415 (6.3455 Friday). Two weeks ago, the USD/CNH pair hit a high at 6.3945.

Data released today will shine a light on global PMIs. Apart from the UK, most PMIs which measure the prevailing direction of economic trends are expected to ease due to the Omicron variant’s spread across the major and developing economies.

The first Fed meeting of 2022 will unfold next week with indications that the US central bank will commence rate hikes as early as March. Overnight US treasury yields tumbled after trading in a volatile band last week. The benchmark US 10-year bond yield traded between 1.88% and 1.76%. That’s huge. This knee-jerk action in the treasury markets only means more volatility for the currencies. Happy days!

• EUR/USD – The Euro rallied modestly against the Greenback after trading to the overnight low and holding the 1.1300 level. The shared currency closed at 1.1345. On the day, we can find immediate support at 1.1315 and then 1.1300. Immediate resistance can be found at 1.1360 (overnight high) followed by 1.1390 and 1.1410. Expect more choppy trade in the EUR/USD pair in a likely range today of 1.1285-1.1385. Prefer to sell rallies, the specs are still running long Euro bets.
• AUD/USD – The Aussie Battler has always been and is currently a good trading currency pair in choppy markets. Often, as a trader, one had to just shut your eyes, stick to your levels, and buy when its most offered and sell when its most bid. You figure out your stops and go for it. Today, immediate support lies at 0.7160 (overnight low traded was 0.7159) followed by 0.7130. Immediate resistance can be found at 0.7010 followed by 0.7240. Look for further choppy trade in a likely range today of 0.7150-0.7250. Prefer to sell rallies.
• USD/JPY – slip sliding away, the Greenback slid against the Yen to finish at 113.68 from 114.20 on Friday. The rise in risk aversion and lower US bond yields weighed on the USD/JPY pair which hit an overnight low at 113.59. On the day, immediate support lies at 113.50 followed by 113.20, then 112.90. On the topside, immediate resistance is found at 114.00, 114.30 and 114.60. Expect more choppy trade in the USD/JPY pair today. Likely range, 113.30-114.30. Expect Japanese importers to support the bid in Asia today.
• GBP/USD – Sterling slid against the US Dollar and other major rivals to 1.3555 at the close of trading in New York on Friday. Earlier in the day, GBP/USD opened at 1.3595 as more market participants saw a slight chance for a Bank of England rate hike at its policy meeting next week (3 February). On the day immediate resistance for the British Pound lies at 1.3600 (overnight high 1.3602). The next resistance level is found at 1.3630. On the downside, immediate support lies at 1.3530 followed by 1.3500 and 1.3470. Pressure on Boris Johnson to resign may grow after next week’s inquiry led by civil servant Sue Gray into the “partygate” scandal at No 10 Downing Street. Look for further choppy trade in a likely 1.3510-1.3610 range today. Preference is to sell rallies.

(Source: Finlogix.com)

Expect further volatile FX trade today and in the week ahead. Happy Monday, happy trading, happy days!