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Bolstered Risk Sentiment Weighs On Greenback, CNH Surges

FOREX
  • US Dollar sentiment is on a downward trajectory to start the week, with weakness across the board on Monday. Dollar indices have shed around 0.35%, with the DXY crossing below the 50-day moving average for the first time since Feb 23rd. Currency moves largely fizzled out after the WMR fix with US Memorial Day holiday sapping volatility across markets.
  • The catalyst for the sell-off appears to be continued risk-on flows, with global equity benchmarks improving on Friday’s advance.
  • Bolstered risk sentiment stems from China Covid/stimulus news where Shanghai will scrap unreasonable restrictions to accelerate the resumption of work and production and promote consumption and investment after a two-month lockdown to curb the spread of Covid-19.
  • This explains why we have seen outperformance by CNH relative to high beta G10 FX moves. USD/CNH saw a sharp drop through 6.6900, and is now seen 0.75% below Friday’s closing levels at 6.67 as of writing.
  • Broad optimism also lent support to the likes of AUD, NZD and CAD who all saw particular gains against the JPY and CHF, underperforming across G10 currencies as expected.
  • EURUSD continues to edge higher, gaining close to a half percent, narrowing the gap with the 1.08 mark and the bear channel top seen at 1.0822, which remains the nearest objective for the current bull cycle playing out.
  • In emerging markets, USDTRY (+0.99%) continues to trend higher, with Monday prices holding just below the May highs of 16.4668. The pair maintains a bullish tone following recent gains and last week’s break of the 16.00 handle.
  • Japanese activity data will precede Chinese PMIs during Tuesday’s APAC session. Eurozone inflation data headlines the European docket. Elsewhere, Canadian GDP, US consumer confidence and the MNI Chicago Business Barometer™ are other data points of note.
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