JPY plunges, BOJ remains ultra-easy; EUR falls lower

DXY stands at almost ten years; Asian-EMFX Tumble

Summary: The Japanese yen plunged against the US dollar after the Bank of Japan maintained its ultra-loose monetary policy. Following its meeting yesterday, Japan’s central bank kept its parameters for controlling yields and the scale of its asset purchases unchanged. USD/JPY exploded higher breaking the 130.00 barrier to end at 130.85 in New York (128.20 yesterday). Overnight, USD/JPY climbed to a 20-year high of 131.25 before falling again at its New York close. As markets expected the US Federal Reserve to raise interest rates by 50 basis points next week, the US dollar extended its ascent against its rivals. A favorite indicator of the value of the greenback against a basket of six major currencies, the Dollar Index (DXY) climbed to 103.928, overnight and off highs of November 2002 before easing to settle at 103 .65 (103.35 yesterday). The euro (EUR/USD) broke through the 1.0600 support level to an overnight low of 1.0471 before rising to 1.0500 at the close of trading in New York. The British pound (GBP/USD) fell 0.63% against the greenback to 1.2462 (1.2605). The Australian Dollar (AUD/USD) finished at 0.7098, down 0.38% from yesterday’s 0.7135. The Kiwi (NZD/USD), dubbed the flightless bird, had its wings clipped, down 0.82% to 0.6487 (0.6565). Against Asian and emerging market currencies, the dollar continued to rise. USD/CNH (US Dollar-Chinese Offshore Yuan) jumped to 6.6575 from 6.5920 while USD/THB (US Dollar-Thai Baht) was last at 34.45 (34.30). Most global bond yields rose. The 10-year US Treasury yield jumped 10 basis points to 2.82%. US two-year bond yields climbed to 2.62% (2.48%). The yield on the 10-year German Bund last stood at 0.90% versus 0.81%. The Japanese 10-year JGB yield, however, fell 2 basis points to 0.21% (0.23%). The Australian 10-year Treasury yield was last at 3.08% (3.10%).

Economic data released yesterday saw Japan’s preliminary industrial production in March fall to 0.3% against median expectations of 0.5% and an upward revision of 2.0%. Japanese retail trade in March was up 2% month-on-month from -0.9% previously and 0.9% year-over-year from -0.9%. ANZ Bank’s New Zealand Business Confidence in April fell from -41.9 to -42. Australia’s first quarter export price index rose to 18% from 3.5% previously, beating median estimates of 3.7%. Germany’s April harmonized consumer price index year-on-year rose to 7.8% from 7.6%, beating median estimates at 7.6%. Preliminary first-quarter US annualized GDP fell to -1.4% versus expectations of 1.1% and 6.9% in the previous quarter. US weekly jobless claims were 180,000 versus 185,000 previously and forecast for 178,000.

  • EUR/USD – The common currency broke through the 1.0600 support level on Wednesday, falling to a new 2017 low overnight at 1.0471 before climbing to 1.0500 at the close in New York. Earlier in the day, the Euro traded at an overnight high of 1.0565. The ongoing war between Ukraine and Russia continued to weigh on the EUR/USD pair.
    • USD/JPY- The greenback soared against the Japanese yen after the Bank of Japan maintained its ultra-easy policy and kept the scale of its asset purchases unchanged. This contrasts with expectations of a 50 basis point Fed rate hike at their meeting next week. This follows a 0.25bp rate hike in March. USD/JPY was last at 130.85 (128.20 yesterday). The overnight high traded for USD/JPY was at 131.25.
    • AUD/USD – the Aussie dollar fell under the weight of the overall stronger greenback to close at 0.7098 from 0.7135. The overnight low traded for the Aussie Battler was at 0.7055. The Aussie’s fall against the greenback was more moderate following yesterday’s higher-than-expected rise in the Australian consumer price index. Some analysts expect the RBA to raise rates at its meeting next week, a month ahead of what most analysts had expected.
  • GBP/USD – The British Pound also tumbled under the weight of broad-based US Dollar strength, falling 0.63% to 1.2463 (1.2575). Overnight, GBP/USD traded at a low of 1.2411 not seen since March 2020. GBP/USD hit an overnight high of 1.2570 in a volatile trade .

On the lookout: Japanese markets are out today, celebrating their Showa Day holiday. The economic calendar kicks off with Australia’s Q1 PPI report (f/c 1.5% vs. previous 1.3%). Australia also releases its April Private Sector Credit (m/m not f/c, previous was 0.6%; y/y not f/c, previous was 7.9%). France starts European data with its March preliminary GDP growth rate (q/q/c 0.3% vs 0.7%; y/y not f/c, previous was 5.4% – ACY Finlogix). Germany follows with its import prices for the month of March (m/mf/c 3.4% from 1.3%; y/yf/c 28.6% from 26.3% – ACY Finlogix). Switzerland releases March retail sales (m/m not f/c, previous was 0.3%, y/y not f/c, previous was 12.8%). France follows with its April preliminary inflation rate (m/mf/c 0.2% from 1.4%; y/yf/c 5.1% from 5.1% – ACY Finlogix ). Germany follows next with its flash German GDP growth rate (q/qf/c 0.1% of -0.3%; y/yf/c 3.6% of 1.8% – ACY Finlogix). Eurozone releases April flash inflation rate (y/yf/c 7.5% of 7.4%), Eurozone April flash inflation rate (f/c 3.2 2.9% – ACY Finlogix). Canada starts with North American data with its March ADP employment change (no f/c, previous was 475,000), Canadian GDP for February (f/c 0.8% from previous 0.2%). The E. 0.5% – ACY Finlogix), US Personal Spending in March (f/c 0.7% vs. 0.2% – ACY Finlogix). The Chicago US April PMI follows (f/c 62 of 62.9 – ACY Finlogix), and finally the final April Consumer Sentiment from the American University of Michigan (f/c 65 .7 of 59.4).

Business perspective: The greenback continued to climb against its rivals to varying degrees. This time, it was the Japanese yen that suffered the most after the Bank of Japan maintained its ultra-accommodative monetary policy, keeping the scale of its asset purchases unchanged. Currency volatility has been fueled by growing divergence among global central banks. The US Federal Reserve is expected to hike rates by 50 basis points at its meeting next week, following a quarter-point hike in March. This will keep the dollar underpinned, allowing the greenback to remain the “king” of FX. Overnight, the benchmark US 10-year bond yield rose 10 basis points to 2.82%. In contrast, Japan’s 10-year JGB rate fell two basis points to 0.21%. Other global treasury rates rose, however, but yield spreads remained in favor of the US dollar. Look at these differentials. Any narrowing in these yield spreads between the US and its rivals could trigger excessive speculative long bets on the dollar to head for the exits.

  • EUR/USD – the euro continued its downward trend against the generally stronger US dollar. The clean break of the previous support level of 1.06 emboldened the Euro bears. Overnight, the common currency plunged to a low of 1.0471 before rising to settle at 1.0500 at the close in New York. The overnight high was at 1.0565. Immediate support stands today at 1.0470 followed by 1.0440. Immediate resistance can be found at 1.0530, 1.0560 and 1.0600. Look for consolidation in the likely range today of 1.0475-1.0575. Don’t be bearish at the current levels, prefer to trade the range.
  • USD/JPY- The Dollar Yen pair came to life this month after diverging trajectories between the US Federal Reserve and the Bank of Japan. Overnight, USD/JPY hit a new 20-year high at 131.25 from 128.20 yesterday before falling back to 130.85. For today, immediate resistance stands at 131.00 and 131.30. Immediate support can be found at 130.50, 130.20 and 129.90. As Japan is on vacation today, rest assured that the Bank of Japan will be keeping tabs on the yen, ready to “smooth” any wild moves. Like the good old times ! Expect a choppy session within a likely wide range of 130.20 to 131.20.

(Source: Finlogix.com)

  • AUD/USD – the Australian dollar eased against the greenback to close at 0.7098 (0.7135 yesterday). The overnight low was at 0.7055. On the day, immediate support can be found at 0.7070 followed by 0.7040 and 0.7010. Immediate resistance stands at 0.7130, 0.7160 and 0.7190. Expect the Aussie to remain under pressure in a likely range today of 0.7030-0.7130. Prefer to sell rallies. Broad-based US dollar strength will push the Aussie lower.
  • GBP/USD – The British currency succumbed to the general strengthening of the US dollar, falling 0.63% to 1.2462 (1.2605). The overnight low was at 1.2411. For today, immediate support can be found at 1.2430, 1.2400 and 1.2370. Immediate resistance can be found at 1.2500, 1.2530 and 1.2560. Expect another choppy session for the pound with a likely range of 1.2420-1.2520.

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