What you need to know on Thursday, April 28:
A sharp reversal of the yen’s recent strength on Wednesday, which lacked a clear trigger, saw the US dollar reclaim the top spot on the G10 daily performance chart and saw the US dollar index (DXY) hit a new high. maximum of 5 years. DXY rallied above 103.00 for the first time since January 2017, touching the 103.30 level before pulling back to stabilize around that level as the US session came to an end.
Dollar bulls were unfazed by data showing the US goods and services trade deficit hit a new record of over $125 billion in March and prompted some analysts to downgrade their estimate of dollar growth. First-quarter GDP, one day before the Bureau of Economic Analysis and Commerce Department releases the first estimate of first-quarter growth. To further explain, expectations that the Fed will implement the first in a series of 50bp rate hikes and quantitative tightening next week, negative geopolitical news flow, and ongoing China lockdown concerns were cited by analysts like profits for the safe-haven dollar.
Regarding yen weakness, traders appeared to have seized the opportunity presented by the recent decline in many of the major G10/JPY pairs to reload long positions, apparently in a bet that recent risk-off flows will not save the yen. yen of further losses for so long as the BoJ doubles down on its dovish policy stance. Speaking of which, the BoJ will announce its latest monetary policy decision as well as new economic forecasts during the upcoming Asian session, with any bearish environment having the potential to exacerbate the yen’s latest slide. For reference, USD/JPY rose over 100 pips or 0.9% on Wednesday to 128.35 from lows below 127.00.
As for the other major underperforming G10 currencies, the euro and Swiss franc were the next worst performers, depreciating 0.8% and 0.7% each on the day against the US dollar. EUR/USD subsequently continued its recent losing streak to drop to 1.0550 with bears eyeing a test of 2017 lows at 1.0335. Analysts cited the latest rise in tensions between the EU and Russia after Gazprom halted gas flows to Poland and Bulgaria (which have refused to pay for gas in rubles) as adding geopolitical risk premiums to the currency. only.
As the EU continues to gawk over another round of energy sanctions that could target both oil and gas exports, fears about stagflation fueled by energy price shortages in the euro zone remain high. According to some analysts, the unfavorable macroeconomic/geopolitical context explains why the EUR/USD has been unable to take advantage of the ECB’s turnaround for the third quarter takeoff in recent weeks.
On the other hand, a stabilization in risk appetite that caused the main US stock markets to close modestly in the green and the stabilization in the commodity markets (apart from precious metals, which continue to be affected), helped cushion the decline in the more risk-sensitive G10 currencies. AUD/USD and USD/CAD finished the US session unchanged around the 0.7120 and 1.2820 levels respectively, with the Australian dollar receiving a notable assist from domestic inflation figures that fueled bets that the RBA could raise rates next week.
Meanwhile, NZD/USD fell another 0.3% below 0.6550, but remained above its yearly lows at 0.6530 and GBP/USD fell another 0.2% below 1.2550, although support at 1.2500 held (per now). Sterling’s outperformance on Wednesday is also likely due in large part to the fact that it has taken a historic beating over the last four sessions, as a recent spate of UK government lending and economic data releases spawned new concerns about the country’s economic outlook and the BoE’s tightening outlook. Wednesday’s dire CBI Distribution Trades survey for April seemed to ensure that the embattled coin did not enjoy a likely overdue technical bounce
Source: Fx Street
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