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Slump In Sentiment Bolsters Greenback Recovery

FOREX
  • Downward pressure for both equity and crypto markets weighed on sentiment Wednesday, prompting a flight to quality in currency markets and the US dollar to recover a portion of its declines on the week.
  • The USD Index (+0.85%) looks set to halt a three-day slump as market participants await the latest set of US CPI data that could have significant short-term implications for December Fed-pricing and the immediate direction for the greenback.
  • Equities continue to pare the week’s gains, largely shrugging off the earlier comments from Russian minister Shoigu, regarding a potential retreat the city of Kherson, that prompted a brief spike in risk. Global markets seemed to be more focused on the Ukrainian rebuttal with the deepening crypto rout an additional USD tailwind. Additional pressure on treasuries following the US 10yr auction is underpinning the dollar’s grind higher approaching the APAC crossover.
  • With risk sentiment dented, the likes of AUD (-1.35%) and NZD(-1.31%) have shown significant weakness for the session, however, GBP is the clear underperformer, having fallen ~1.8%, back below 1.1350 and eyeing the week’s lows around the 1.1300 handle. EURGBP also extended gains above 0.8791 resistance, trading to a 4-week high of 0.8828. Next resistance comes in at 0.8867, high Oct 12.
  • A very light data docket on Thursday ahead of the US CPI main event. Fed’s Waller, Mester and George are on the speaker slate as well as BoC’s Macklem.
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