JPY nosedives, BOJ stays ultra-easy, EUR breaks lower

DXY Soars to Near Decade High; Asian-EMFX Tumble

Summary: The Japanese Yen nosedived against the US Dollar after the Bank of Japan maintained its ultra-easy monetary policy. At the conclusion of its meeting yesterday, Japan’s central bank kept its yield control settings and the scale of its asset purchases unchanged. The USD/JPY pair blasted higher, breaking through the 130.00 barrier to finish at 130.85 in New York (128.20 yesterday). Overnight the USD/JPY rocketed to a 20-year high at 131.25 before easing to its New York close. With markets expecting the US Federal Reserve to raise interest rates 50 basis points next week, the US Dollar extended its climb against its rivals. A favourite gauge of the Greenback’s value against a basket of six major currencies, the Dollar Index (DXY) soared to 103.928, overnight and November 2002 highs before easing to settle at 103.65 (103.35 yesterday). The Euro (EUR/USD) broke lower through the 1.0600 support level to a low of 1.0471 overnight before climbing to 1.0500 in late New York trade. Sterling (GBP/USD) slumped 0.63% against the Greenback to 1.2462 (1.2605). The Australian Dollar (AUD/USD) finished at 0.7098, down 0.38% from yesterday’s 0.7135. The Kiwi (NZD/USD), referred to as the Flightless Bird had its wings clipped, falling 0.82% to 0.6487 (0.6565). Against the Asian and Emerging Market currencies, the Dollar continued its advance. The USD/CNH pair (US Dollar-Offshore Chinese Yuan) jumped to 6.6575 from 6.5920 while USD/THB (US Dollar-Thai Baht) was last at 34.45 (34.30). Most global bond yields rose. The US 10-year treasury rate jumped 10 basis points to 2.82%. Two-year US bond yields climbed to 2.62% (2.48%). Germany’s 10-year Bund yield was last at 0.90% from 0.81%. Japan’s 10-year JGB yield though dipped 2 basis points to 0.21% (0.23%). Australia’s 10-year Treasury yield was last at 3.08% (3.10%).

Economic data released yesterday saw Japan’s March Preliminary Industrial Production fall to 0.3% against median expectations of 0.5% and a previously upward revised 2.0%. Japanese March Retail Trade rose month on month to 2% from a previous -0.9% and year on year to 0.9% from -0.9%. New Zealand’s April ANZ Bank Business Confidence dipped to -42 from -41.9. Australia’s Q1 Export Price Index rose to 18% from a previous 3.5%, beating median estimates at 3.7%. Germany’s April Harmonised Index of Consumer Prices year on year climbed to 7.8% from 7.6%, beating median estimates at 7.6%. US Q1 Preliminary Annualised GDP fell to -1.4% against expectations of 1.1% and the previous quarter’s 6.9%. US Weekly Unemployment Claims were at 180,000 from a previous 185,000, and forecasts at 178,000.

• EUR/USD – The shared currency sliced through the 1.0600 support level on Wednesday, tumbling to an overnight and fresh 2017 low at 1.0471 before climbing to settle at 1.0500 at the close in New York. Earlier in the day, the Euro traded to an overnight high at 1.0565. The ongoing war between Ukraine and Russia continued to weigh on the EUR/USD pair.

• USD/JPY – the Greenback ratcheted higher against the Japanese Yen after the Bank of Japan maintained its ultra-easy policy and kept the scale of its asset purchases unchanged. This contrasted with expectations of a Fed rate hike of 50 basis points when they meet next week. Which is coming on the back of a 0.25 bp rate hike in March. USD/JPY was last at 130.85 (128.20 yesterday). Overnight high traded for the USD/JPY pair was at 131.25.

• AUD/USD – the Australian Dollar fell under the weight of the broadly based stronger Greenback to close at 0.7098 from 0.7135. Overnight low traded for the Aussie Battler was at 0.7055. The Aussie’s drop against the Greenback was more subdued following yesterday’s higher-than-expected rise in Australia’s Consumer Price Index. Some analysts expect the RBA to hike rates when it meets next week, a month ahead of what most analysts predicted.

• GBP/USD – Sterling also fell under the weight of broad-based US Dollar strength, tumbling 0.63% to 1.2463 (1.2575). Overnight, the GBP/USD pair traded to 1.2411 lows, not seen since March 2020. The GBP/USD hit an overnight high at 1.2570 in volatile trade.

On the Lookout: Japanese markets are away today, celebrating their Showa Day holiday. The economic calendar kicks off with Australia’s Q1 Producer Price Index report (f/c 1.5% from previous 1.3%). Australia also releases its April Private Sector Credit (m/m no f/c, previous was 0.6%; y/y no f/c, previous was 7.9%). France starts off European data with its March Preliminary GDP Growth Rate (q/q f/c 0.3% from 0.7%; y/y no f/c, previous was 5.4% - ACY Finlogix). Germany follows with its Import Prices for March (m/m f/c 3.4% from 1.3%; y/y f/c 28.6% from 26.3% - ACY Finlogix). Switzerland releases its March Retail Sales (m/m no f/c, previous was 0.3%, y/y no f/c, previous was 12.8%). France follows with its April Preliminary Inflation Rate (m/m f/c 0.2% from 1.4%; y/y f/c 5.1% from 5.1% - ACY Finlogix). Germany follows next with its German Flash GDP Growth Rate (q/q f/c 0.1% from -0.3%; y/y f/c 3.6% from 1.8% - ACY Finlogix). The Eurozone releases its Flash April Inflation Rate (y/y f/c 7.5% from 7.4%), Eurozone Flash April Core Inflation Rate (f/c 3.2% from 2.9% - ACY Finlogix). Canada starts off North American data with its March ADP Employment Change (no f/c, previous was 475,000), Canadian February GDP (f/c 0.8% from previous 0.2%). The US rounds up today’s busy calendar with its Core PCE Price Index for March (m/m f/c 0.3% from 0.4%; y/y f/c 5.3% from 5.4%), US March Personal Income (f/c 0.4% from 0.5% - ACY Finlogix), US March Personal Spending (f/c 0.7% from 0.2% - ACY Finlogix). US Chicago April PMI follows (f/c 62 from 62.9 – ACY Finlogix), and finally US University of Michigan April Final Consumer Sentiment (f/c 65.7 from 59.4).

Trading Perspective: The Greenback continued to grind higher against its rivals to varying degrees. This time it was the Japanese Yen which succumbed most after the Bank of Japan kept its ultra-easy monetary policy, keeping the scale of its asset purchases unchanged. FX volatility picked on the rising divergence between global central banks. The US Federal Reserve is expected to deliver a 50- basis point rate hike when it meets next week, following a quarter point hike in March. This will keep the Dollar underpinned, allowing the Greenback to stay “king” of FX. Overnight, the benchmark US 10-year bond yield was up 10 basis points to 2.82%. In contrast, Japan’s 10-year JGB rate dipped two basis points to 0.21%. Other global treasury rates though rose but the yield differentials remained in favour of the US currency. Watch those differentials. Any narrowing of those yield gaps between the US and its rivals could trigger overstretched speculative Dollar long bets to head for the exits.

• EUR/USD – the Euro continued its grind lower against the overall stronger US Dollar. The clean break of the previous support level of 1.06 emboldened Euro bears. Overnight the shared currency plunged to a low at 1.0471 before rallying to settle at 1.0500 at the close in New York. Overnight high traded was at 1.0565. Immediate support today lies at 1.0470 followed by 1.0440. Immediate resistance can be found at 1.0530, 1.0560 and 1.0600. Look for consolidation in a likely range today of 1.0475-1.0575. Not getting bearish at current levels, prefer to trade the range.
• USD/JPY – The Dollar Yen pair came to life this month following diverging paths between the US Federal Reserve and the Bank of Japan. Overnight the USD/JPY pair soared to a fresh 20-year high at 131.25 from 128.20 yesterday before easing to 130.85. For today, immediate resistance lies at 131.00 and 131.30. Immediate support can be found at 130.50, 130.20 and 129.90. While Japan is on holiday today, rest assured the Bank of Japan will be keeping an eye on the Yen, prepared to “smooth” out any wild moves. Just like in the good old days! Expect a choppy session in a likely wide range of 130.20-131.20.

(Source: Finlogix.com)

• AUD/USD – the Australian Dollar eased against the Greenback to finish at 0.7098 (0.7135 yesterday). Overnight low traded was at 0.7055. On the day, immediate support can be found at 0.7070 followed by 0.7040 and 0.7010. Immediate resistance lies at 0.7130, 0.7160 and 0.7190. Look for the Aussie to remain under pressure in a likely range today of 0.7030-0.7130. Prefer to sell rallies. Broad based US Dollar strength will push the Aussie lower.
• GBP/USD – The British currency succumbed to the overall stronger US Dollar, tumbling 0.63% lower to 1.2462 (1.2605). Overnight low traded was at 1.2411. For today, immediate support can be found at 1.2430, 1.2400 and 1.2370. Immediate resistance can be found at 1.2500, 1.2530 and 1.2560. Look for another choppy session in Sterling with a likely range trade of 1.2420-1.2520.