Market Drivers – US Session – 20 April

Fed Chair Jerome Powell’s remarks on Thursday will be closely monitored and are being flagged as having the potential to reignite the buck’s recent bull run. ECB President Christine Lagarde and BoE Governor Andrew Bailey will both also be speaking, so central bank policy divergence will be an important FX market theme for the rest of the week.

The US dollar surrendered to profit-taking on Wednesday as US yields pared back from multi-year highs, burnishing the dollar’s investment appeal. The Dollar Index (DXY) slid back 0.6% to the low 100.00s having hit its highest levels since March 2020 above 101.00 on Tuesday, weighed primarily by downside in USD/JPY as the yen received some overdue respite.

Economic Data

Existing-home sales fell for the second straight month in March to a seasonally adjusted annual rate of 5.77 million. Sales were down 2.7% from the prior month and 4.5% from a year ago.

With slower demand, the inventory of unsold existing homes increased to 950,000 as of the end of March. That would support 2.0 months at the monthly sales pace. The median existing-home sales price rose to $375,300, up 15% from one year ago.

Existing-home sales decreased in March, marking two consecutive months of declines, according to the National Association of Realtors®. Month-over-month, sales in March waned in three of the four major U.S. regions while holding steady in the West. Sales were down across each region year-over-year.

Other Developments
The euro and sterling also gained some ground against the US dollar counterpart, with decent Eurozone Industrial Production figures and hawkish ECB chatter about a potential July hike potentially helping the euro. But in truth, the main driver of EUR/USD’s 0.6% recovery to the 1.0850 area and GBP/USD 0.5% rebound to above 1.3050 came from the dollar side of the equation.

The Australia’s, Canada’s and New Zealand’s dollars were notable outperformers on Wednesday. AUD/USD jumped about 1.0% to near 0.7450, NZD/USD gained about 1.0% to reclaim 0.6800 and test its 50-Day Moving Average at 0.6813 and USD/CAD dropped to two-week lows under 1.2500. USD/JPY dropped just over 0.8% on the day to back under the 128.00 level, more than 1.2% below intra-day multi-decade highs at 129.40 hit earlier in the session.

The hawkish tone to the RBA minutes released earlier in the week plus spicey Canadian Consumer Price Inflation (CPI) figures released on Wednesday likely helped lift the Aussie and loonie. Meanwhile, kiwi traders are bracing for the release of Q1 2022 CPI figures in the upcoming Asia Pacific session.

Several traders noted that while some more profit-taking in the US dollar was certainly possible, with the Fed now very much on autopilot to taking rates to neutral by the end of the year, recent weakness likely won’t be long-lasting. That suggests, at the very least, the recent drop in USD/JPY and rallies in EUR/USD and GBP/USD might not have much further room to run.

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