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Cross/JPY Retreats Amid Risk Aversion, USD Extends Pullback

FOREX
  • Risk-off flows swept across G10 currencies on a negative lead from the equity space and lower core yields on Tuesday. Risk aversion was exacerbated by weak US data, including PMIs, Richmond Fed Mfg index and new home sales all missing surveyed estimates.
  • The weak US data points continued to weigh on the US Dollar, sending the DXY to a four-week low. The Japanese Yen was the best performer, closely followed by the Swiss Franc in the G10 space. Cross/JPY bore the brunt of the pessimistic sentiment, with the likes of CADJPY and GBPJPY falling over 1.5%.
  • The euro remains well bid and shows similarly strong relative against higher beta G10 counterparts. This is largely in part to early comments from ECB President Lagarde in a Bloomberg interview in Davos where she noted that the ECB were attentive to the EUR level. Additional commentary from ECB officials surrounding the potential for larger than 25bp hikes have kept EURUSD back above 1.0700.
  • As noted, the current bull cycle started at 1.0350, May 13 low and from the base of a bear channel, drawn from the Feb 10 high. The channel top intersects at 1.0857 and is a potential short-term objective. Initial support remains at 1.0533, May 20 low.
  • The second main story throughout the European session on Tuesday was the big UK Services and Composite PMI miss, which saw the Pound plummet around 100 pips from 1.2580 to a 1.2472 low.
  • The RBNZ meeting/decision will be the most notable event for the upcoming APAC session. Latest CPI and jobs market data reinforce the case for continued monetary policy tightening, with headline inflation hitting three-decade highs and the unemployment rate holding at a record low.
  • US Durable goods data will precede the latest release of the FOMC minutes from the Fed’s May 4 meeting.
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