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Greenback Reverses Lower Amid Lower US Yields, Higher Equities

FOREX
  • The USD Index made fresh two-week highs in early trade on Tuesday, extending the late recovery seen on Monday from the key support at 101.81, 50-dma. However, a bounce for major equity indices and lower US yields weighed on the greenback throughout the US trading session.
  • The softer US Dollar boosted the likes of GBP and CAD which look to post half percent gains on the day. The Euro (+0.10%) was more subdued as markets prepare for Thursday’s ECB meeting.
  • The key outperformer was AUD, rising around 0.6% after the RBA surprised markets overnight, raising rates by 50bps against expectations of a 25bps move. The appreciation was by no means in a straight line. After spiking to 0.7246, the pair subsequently faded, printing fresh lows below 0.7160 at the start of NY trade. The currency eventually recovered amid a multitude of sell-side analysts bringing forward forecasts for the next 50bps hike and the renewed bid in global equity benchmarks.
  • The Japanese Yen is once again the poorest performer in the G10 currency space. USDJPY has resumed its primary uptrend with the pair clearing resistance at 131.35, May 9 high. The move higher maintains the broader bullish price sequence of higher highs and higher lows and with moving average studies pointing north, indications are that the USD has further to go. The focus is on 134.48, a Fibonacci projection. Initial firm support is seen at 128.94, the 20-day EMA.
  • The ECB meeting remains the nearest key risk event for global markets, due Thursday. The ECB is now clear that the APP will end in early July, policy rate lift-off will occur in the same month and policy rates will reach zero by September. A 50bp hike in July is a low, but increasing, risk. However, the probability is rising of a one-off 50bp hike or a series of such hikes from September onward.
  • US CPI data and Canadian Employment will be released on Friday.
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