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USD Index Retraces Monday Climb, NOK Weakness Stands Out In G10

FOREX
  • The USD index weakened on Tuesday, erasing the majority of the post-NFP strength in the lead up to another important CPI report tomorrow. The USD Index is close to 0.6% off the Monday high, with 101.987 marking the immediate support to watch. Moves come as markets see relatively little read through from the jobs report to Fed monetary policy, with a 25bps step in early May likely marking the peak of this tightening cycle.
  • The Norwegian Krone was the weakest in G10 on Tuesday, a notable move given the stronger than expected CPI figures for March and firmer oil prices. The data is seen as doing little more to bolster the Norges hiking backdrop and the sell-off is being tied more closely to thin liquidity across Scandi currency markets, exacerbated by EURNOK (+0.85%) breaching the prior 2023 highs above 11.4829. Desks also reported real money demand for EURNOK assisting the move higher.
  • European yields rose substantially Tuesday in the return to trading following a four-day weekend. The German curve bear flattened sharply, as the short end caught up with weakness in its US counterpart, including a sharp upward repricing in ECB terminal rate expectations which bolstered the Euro. EURUSD rose 0.42% to regain the 1.09 handle, maintaining the underlying bullish technical outlook for the pair.
  • Early USDJPY weakness, however, was shrugged off with higher core yields continuing to weigh on the Japanese yen, which has been under renewed pressure since the release of the US employment data on Friday.
    • Despite most recent gains for USDJPY being considered technically corrective overall, attention is on resistance at 133.87, Monday’s high. A break of this level would strengthen a short-term bullish theme and highlight a clear breach of the 50-day exponential moving average. This would open 134.75, a Fibonacci retracement.
  • As well as US CPI on Wednesday, the Bank of Canada rate announcement & press conference as well as the FOMC minutes make for a packed schedule.
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