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USD Index Extends Advance Amid Further Hawkish Fed Re-Pricing

FOREX
  • Further hawkish re-pricing in the US extended on Monday, assisting further greenback strength following Friday’s above-estimate payrolls report. This prompted the USD index (+0.47%) to briefly trade at the highest level since Nov 14 at 104.60.
  • Initial weakness for equities weighed on the likes of AUD and EUR, although GBP is the weakest performing major currency to start the week.
  • GBPUSD traded sharply lower Friday and extended the pullback through Monday trade. The pair has breached support at 1.2597, the Jan 17 low and the base of a range that has been in place since mid-January. A clear range breakout would strengthen a bearish condition and pave the way for weakness towards 1.2500, the Dec 13 low.
  • Focus is also on AUD, as we approach the overnight decision from the RBA, where the central bank is unanimously expected to leave rates unchanged at 4.35%. The meeting statement is likely to acknowledge the softer data but sound cautious pointing out that the inflation fight has not yet been won and that significant uncertainties persist.
  • From a trend perspective, a bearish theme in AUDUSD continues to dominate and the latest sell-off reinforces this condition. The break to fresh cycle lows last week confirms a resumption of the downtrend and signals scope for weakness towards 0.6453, the Nov 17 low.
  • Perhaps surprisingly given its continued sensitivity to core rates the Japanese yen is not among the poorest performers in G10 on Monday, as the early weakness for major equity indices likely weighed on Cross/JPY. However, USDJPY’s impressive rally in the aftermath of the US data did briefly extend to a new 2024 high of 148.89, before moderating 30 pips lower ahead of the APAC crossover.
  • The trend outlook is unchanged and remains bullish, with bulls next focused on 149.16, a Fibonacci retracement. For reference, notable levels further out include 149.75 and 150.78, the November 22 and 17 highs respectively.
  • German factory orders, UK construction PMI and Eurozone retail sales highlight the European docket on Tuesday.
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