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Greenback Reversal Lower Extends Amid Surging Equities

FOREX
  • The significant rally for major equity benchmarks has continued to weigh on the greenback on Thursday, with the USD index briefly extending its post-FOMC decline to over 1%. The move higher for yields during the US session prompted only a moderate USD recovery, with the DXY consolidating the majority of session losses ahead of the US employment data tomorrow.
  • G10 gains versus the dollar were broad based with the outperformance unsurprisingly being seen in higher beta currencies such as the New Zealand and Canadian dollars, which have both risen around 0.80%.
  • The move lower for USDCAD more notably pushed below support at 1.3790 (Oct 26 low) narrowing the gap significantly with 1.3739, the 20-day EMA. Upward pressure for crude futures amid headlines implying further escalation in the Israel-Hamas conflict have also provided an additional CAD tailwind.
  • EURUSD steadily climbed over the first half of the day, regaining the 1.0600 handle and peaking at 1.0668, just shy of the week’s highs at 1.0675. Interestingly ahead of tomorrow’s US data, the overall technical outlook is bearish and short-term gains have been considered corrective so far. The move lower last week has reinforced a bearish theme - the Oct 24 price pattern is a bearish engulfing candle, a strong reversal signal.
  • The Japanese Yen also heavily benefitted from the substantial shift lower for US yields late Wednesday and across the first half of Thursday trade. This prompted the pair to briefly slide back below the 150.00 mark to print 149.85, roughly 190 pips below Tuesday’s peak.
  • Some emerging market currencies have understandably been the biggest beneficiaries from the more optimistic market backdrop. LatAm FX standouts with the Mexican peso rallying another 1.25%, and the likes of HUF & PLN also rising over 1%.
  • All eyes turn to the US employment data on Friday where Bloomberg consensus sees nonfarm payrolls growth of 180k in October after almost doubling estimates with 336k in September along with strong two-month revisions.
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