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US Dollar Is King Amid Surging Yields Post Above-Estimate CPI

FOREX
  • Following the above estimate US CPI data, the greenback has extended its weekly gains with the USD index looking set to post +2% gains since last Friday’s close.
  • Two- and five-year US Treasury yields climbed to the highest since 2008 with swaps now pricing at least 50bps hikes for the next three Fed meetings and showing greater than 50% odds of a 75bps increase in July.
  • EURUSD continued its downward trajectory following Thursday’s ECB meeting. The move lower also means channel resistance at 1.0733 remains intact. For bears, the extension lower has seen a breach of 1.0533, the May 20 low, opening up 1.0461 (previous lows) and 1.0350, low May 13 and bear trigger.
  • The weakness across major equity benchmarks naturally weighed on the likes of AUD, NZD, CAD and CHF, however GBP was the main G10 victim of the price action on Friday.
  • GBPUSD sold off close to 1.5% following a clean break of the key short-term support point at 1.2431, Tuesday’s low. The primary trend direction remains down and today’s resumption of bearish activity has breached initial support at 1.2317, the May 17 low. The key technical bear trigger resides at 1.2156, May 13 low.
  • Similarly, global stagflationary concerns weighed substantially on the emerging market FX basket. In particular, the South African Rand dropped 2.25% and was closely followed by the majority of LatAm currencies. USDMXN rose back above the 50-day EMA at 19.9702, a technically bullish development.
  • UK growth data headlines a quiet start to next week. Central banks remain in focus with the Fed, SNB and BOE all meeting next week.
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