Next 24 hours: Stocks trying to recover, USD still bid
Today’s report: So what's driving US Dollar demand?
One thing we’re seeing out there that’s of interest, is clear ongoing demand for the US Dollar, despite attempts at a recovery in risk assets. This highlights the not one, but two distinct drivers of US Dollar demand right now.
Wake-up call
- war, data
- sales volume
- yield cap
- broader pressure
- slumping oil
- policy divergence
- Stocks vulnerable
- Dealers report
Peformance chart: 30 Day Performance vs. US dollar (%)
Suggested reading
- The Hong Kong Dollar's Peg Has Become Untenable, R. Cookson, Bloomberg (April 28, 2022)
- Belfast Tries to Heal a Legacy of Separation, J. Webber, Financial Times (April 29, 2022)
Chart talk: Technical & fundamental highlights
Choose pair:
EURUSD – technical overview
A recent breakdown below 1.1100 to fresh multi-month lows now sets up the next major downside extension towards the multi-year low from 2017 in the 1.0300 area. At this stage, it will take a push back above 1.1500 to force a shift in the outlook.EURUSD – fundamental overview
The Euro has traded down to a 5 year low on the back of ongoing stress around fallout from the Russia-Ukraine war, global growth concerns and yield differentials with the US Dollar. Fear Russia may halt gas supplies to European countries that refuse to pay in Rubles has really taken its toll on the single currency in recent sessions. Meanwhile, German consumer confidence has dropped to new pandemic-era lows. Key standouts on today’s calendar come in the form of ECB speak, Eurozone sentiment and confidence reads, a BOE Bailey speech, German inflation, US GDP, and US initial jobless claims.EURUSD - Technical charts in detail
GBPUSD – technical overview
The market is in a correction phase in the aftermath of the run to fresh multi-month highs in 2021. At this stage, additional setbacks should be limited to the 1.2500 area ahead of the next major upside extension towards a retest and break of critical resistance in the form of the 2018 high. Back above 1.3148 takes immediate pressure off the downside.GBPUSD – fundamental overview
UK economic data has been awful of late. UK debt service and public sector wage costs have exploded, while April CBI monthly sales volume has crashed. BOE Bailey has been sounding less hawkish. And yield differentials continue to play into the Dollar's favor. Key standouts on today’s calendar come in the form of ECB speak, Eurozone sentiment and confidence reads, a BOE Bailey speech, German inflation, US GDP, and US initial jobless claims.USDJPY – technical overview
The market has rocketed higher to its highest levels since 2002 after breaking through the 2015 high. Technical studies are however quite extended, with scope for a sizable correction in the weeks ahead. Look for additional upside from here to be limited to the 130.00 area for now.USDJPY – fundamental overview
The Yen continues to take its hits from the massive yield differential and monetary policy divergence between the BOJ and Fed, trading to its lowest levels against the Buck in 20 years. The market now thinks the BOJ will not fight much again Yen weakness at its upcoming meeting, opting for the lesser of two evils and maintaining the JGB yield cap. Key standouts on today’s calendar come in the form of ECB speak, Eurozone sentiment and confidence reads, a BOE Bailey speech, German inflation, US GDP, and US initial jobless claims.AUDUSD – technical overview
At this stage, the market has found a bottom and is trying to work back to the topside. Still, the overall pressure remains on the downside and ultimately, it will take a weekly close back above 0.7600 to officially shift the focus back on the topside.AUDUSD – fundamental overview
The Australian Dollar has been unable to avoid downside pressure from a very clear yield differential advantage to the US Dollar, and from falling commodities prices. And despite some attempts at recovery in stocks, overall, sentiment has been weighed down as well, which has also been no help to the risk correlated commodity currency. Key standouts on today’s calendar come in the form of ECB speak, Eurozone sentiment and confidence reads, a BOE Bailey speech, German inflation, US GDP, and US initial jobless claims.USDCAD – technical overview
Signs of a major bottom in the works after a severe decline from the 2020 high. A recent weekly close back above 1.2500 encourages the constructive outlook and opens the door for a push back towards next critical resistance in the 1.3000 area. Any setbacks should be well supported into the 1.2200s.USDCAD – fundamental overview
The Canadian Dollar has been unable to avoid downside pressure from a very clear yield differential advantage to the US Dollar, and from falling commodities prices. And despite some attempts at recovery in stocks, overall, sentiment has been weighed down as well, which has also been no help to the risk correlated commodity currency. Key standouts on today’s calendar come in the form of ECB speak, Eurozone sentiment and confidence reads, a BOE Bailey speech, German inflation, US GDP, and US initial jobless claims.NZDUSD – technical overview
The market has been trending lower since topping out in 2021, making a series of lower highs and lower lows. Look for the latest recovery rally to set up the next lower top for a bearish continuation below 0.6500 and towards 0.6000. Back above 0.7200 would be required to negate and force a shift in the structure.NZDUSD – fundamental overview
The New Zealand Dollar has been unable to avoid downside pressure from a very clear yield differential advantage to the US Dollar, and from falling commodities prices. And despite some attempts at recovery in stocks, overall, sentiment has been weighed down as well, which has also been no help to the risk correlated commodity currency. Key standouts on today’s calendar come in the form of ECB speak, Eurozone sentiment and confidence reads, a BOE Bailey speech, German inflation, US GDP, and US initial jobless claims.US SPX 500 – technical overview
Longer-term technical studies are in the process of unwinding from extended readings off record highs. Look for rallies to be well capped in favor of lower tops and lower lows. Back above 4,700 will be required at a minimum to take the immediate pressure off the downside. Below 4105 opens next downside extension.US SPX 500 – fundamental overview
With so little room for additional central bank accommodation, given an already depressed interest rate environment, the prospect for sustainable runs to the topside on easy money policy incentives and government stimulus, should no longer be as enticing to investors. Meanwhile, ongoing worry associated with coronavirus fallout, rising inflation, and geopolitical tension should weigh more heavily on investor sentiment in Q2 2022.GOLD (SPOT) – technical overview
The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs. Setbacks should now be well supported above 1800.GOLD (SPOT) – fundamental overview
The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, coronavirus fallout, inflation risk, and geopolitical tension. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.