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USD takes a breather after a tumultuous, historic week

April 29,2022 06:48:00

Overnight Headlines

*DXY has pulled back from two-decade highs but retains 103 status

*Apple shares dip after company warns of a possible $8bn hit

*Amazon results and outlook fall short as warehouse, fuel costs soar

*Asia shares gain after lead from Wall Street, advance capped by tech results

USD is softer this morning, cooling off from its huge recent advances. The dollar had climbed to a 20-year high just shy of 104, before fading some of the gains. EUR has found some reprieve overnight to reclaim the 1.05 handle. Yesterday’s low was 1.0470. GBP nursed losses after falling to 1.2411 and has reclaimed the 1.25 handle. USD/JPY surged higher to 131.25 before paring gains. Goldman Sachs sees further pressure for the yen even with intervention, unless there is a change to the BoJ’s yield curve control policy. The antipodeans edged higher today with firmer PPI data adding to the inflationary narrative in Australia.

US equities posted gains after morning wobbles on the back of a surprise decline in US Q1 GDP. Tech led the way with Meta closing 17.6% higher on the day. The Nasdaq settled up +3.48% with the mid-March low at 13,020 holding as support again. The Vix is still elevated around 30. Apple shares fell 2.2% after market. Amazon was trading 9% lower after the close. European futures are higher today, but US futures are more mixed.

Day Ahead – Inflation data flash

This morning sees the release of Euro area CPI data for April. This will be a key input for the ECB’s thinking about inflation pressures. The headline number is expected to hit another new high at 7.6%. This is expected to be driven by ongoing cost-push pressures in food and core inflation. The latter is estimated to be running at 3.1%. First quarter Eurozone GDP also hits the wires this morning. This is forecast to be positive, despite production disruptions and soaring prices.

Across the pond, this afternoon sees the release of the Fed’s favoured inflation gauge. The core PCE figure is marked to come in at 0.9% for March.  Consensus is for a rise of 1.1% q/q which would work out at 4.4% y/y for the employment cost index. The dollar is heading for its strongest monthly performance in a decade with a gain of around 5%. Even yesterday’s falling GDP number failed to dent its rally.

Chart of the Day – GBP/USD breakdown stalls at 1.25

This week, cable has actually suffered at the hands of the dollar even more than the euro. The broad positive dollar tone and the technical breakdown account for a lot. Markets have also had one eye on next week’s BoE meeting. Before this week, there were still as many as six rate rises priced in for this year. Any firm signals for a much narrower path for hikes certainly won’t help sterling.

GBP/USD is the most oversold on the daily RSI since the pandemic shock in March 2020. You have to go back to January 2015 for a more oversold weekly RSI. Five cents in five sessions does that. Yesterday’s low at 1.241 faces no major support aside from round numbers until the June 2020 low at 1.2251. The 61.8% Fib level of the 2020-2021 move higher sits at 1.2495.

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