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US Dollar Reigns Supreme, USD Index Rises To 5-Year High

FOREX
  • Gas flows across eastern Europe were the early focus of trade following reports late yesterday that Poland and Bulgaria had been cut off from Russian gas supply. The news continued to add headwinds for the Euro, with overall greenback strength exacerbating the EURUSD downward momentum.
  • A continuation lower was evident throughout Wednesday following the breach of the 2020 low at 1.0636 and then 1.0577, the lower band of a moving average envelope. The low print of 1.0515 came within close proximity of the next support at 1.0494, Low Feb 22, 2017.
  • After trading sharply lower on Tuesday, GBPUSD is also extending the current downtrend. The pair has cleared 1.2676 last printed in September 2020. Today’s low of 1.2503 provided firm support ahead of the psychological level and 1.2495, a Fibonacci retracement.
  • In a reversal of yesterday's outperformance, JPY is the poorest performing currency in G10, helping USD/JPY climb back above the Y128.00 level. USDJPY remains in an overarching consolidation phase as bulls pause after the recent rally. This sideways activity highlights the formation of a bull flag, reinforcing bullish conditions with the uptrend still intact.
  • Broad greenback strength saw the DXY (+0.55%) break above the 2020 peak to reach the best level since January 2017. However, a firmer day for equity/commodity indices saw the likes of AUD and CAD relatively outperform.
  • Focus on the Bank of Japan meeting/decision overnight. Given the BoJ’s continued (and understandable) insistence that current inflationary pressures are cost-push not demand-pull related, markets expect the Bank to leave its monetary policy settings unchanged at the end of its April monetary policy meeting.
  • Tomorrow brings flash April CPI estimates from Germany and Spain. The US data calendar will feature Q1 Advance GDP.
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