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Fed Rhetoric Prompts Greenback Spike, AUD Maintains Gains

FOREX
  • The greenback staged a firm turnaround during US hours on Tuesday, largely fuelled by hawkish Fed rhetoric. Lael Brainard’s speech expecting “the balance sheet to shrink considerably more rapidly than in the previous recovery” underpinned a firm USD recovery from the lows of the day.
  • Price action immediately weighed on EUR/USD, trading through the overnight lows and extending below touted support at 1.0945, the Mar28 low. The recent failure at 1.1185, Mar 31 high and more importantly, the inability to remain above the 50-day EMA (breached last week), highlights a developing bearish threat, signalling scope for a deeper sell-off and immediate focus is on 1.0898, the Mar 14 low.
  • USD/JPY also received a bump higher, putting the rate comfortably back above the Y123.00 handle in a move that gathered momentum throughout the session.
  • The risk-off tone filtered through to the EM basket with popular longs such as the Brazilian Real unwinding around 1.5% and USDMXN following suit by narrowing the gap with the 20.00 mark.
  • Currencies that may have been expected to feel the pinch a bit more include AUD, NZD and CAD, all residing in positive territory for the session. A lot of this can be explained by the sharp overnight weakness in Euro crosses and the continued pressure on the single currency managing to consolidate said weakness.
  • EURAUD especially sits 1.25% lower on the day after breaking horizontal support drawn off the mid-2017 lows at 1.4424, and prices now at the lowest levels since late April 2017 - narrowing the proximity with the 2017 cyclical low of 1.3627.
  • Treasury Secretary Yellen is due to testify on the global financial system before the House Financial Services Committee, in Washington DC tomorrow before the release of the March FOMC meeting minutes at 1900BST/1400ET.
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