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Greenback Soars On Hot Inflation Data, Sharp AUDUSD Reversal Lower

FOREX
  • Higher-than-expected US CPI figures sparked a fresh bout of USD strength, largely reflective of the 20bp move higher for the front-end of the treasury curve. Notably, USDJPY breached the 152.00 level and saw solid follow through above the crucial resistance, although rising fears of any Japanese intervention may be limiting the momentum of the move, with the pair currently up 0.75% at typing.
  • EURUSD slumped 1.14% to 1.0740 and in the process has cleared initial support at 1.0791, the Apr 5 low. The break lower reinstates a short-term bearish threat and signals the end of the recent recovery between Apr 2 - 9. Short-term focus turns to 1.0725, the Apr 2 low, ahead of the key support at 1.0695, the Feb 14 low and bear trigger.
  • With tomorrow’s ECB decision and press conference, it is worth highlighting some elevated levels of FX option expiries, notably $1.0700(E2.0bln) and $1.0800-15(E5.7bln).
  • Other G10 currencies have experienced even sharper weakness against the dollar amid more pessimistic risk sentiment across global markets. This dynamic weighed heavily on antipodeans with AUDUSD sinking 1.90% and has erased the majority of the past week’s gains in the process.
  • The sharp AUDUSD sell-off signals the end of the recent climb and reinstates a bearish threat. A continuation lower would signal scope for a test of support at 0.6478, the Mar 5 low. Clearance of this level would expose the bear trigger at 0.6443, the Feb 13 low.
  • On Thursday, the ECB decision will be in focus. Given the lack of material new information since the last policy meeting, and with the ECB previously steering markets towards a rate cut in June, policy will remain on hold at the April meeting. In the US, key PCE components have raised the stakes for tomorrow's PPI, due at 1330BST/0830ET.
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