Market Drivers – US Session – Wed. 27 April

Mohamed Abdelhamid 28 April, 2022 2:29 am Forex Market, Global Stock Market, Market Update

Wednesday witnessed a sharp reversal of recent yen strength, which lacked a clear trigger. Meanwhile, the US dollar has reclaimed the top spot in the daily G10 performance table, and saw the trade-weighted US Dollar Index (DXY) hit fresh more than five-year highs.

The Dollar Index rallied to the north of the 103.00 mark for the first time since January 2017, topping out near 103.30 before retracing lower to stabilize around the big figure as US trade drew to a close.

Economic Data
The US dollar bulls were so much relieved by data showing the US Goods & Services Trade Deficit hit a new record at more than $125B in March and resulted in some analysts downgrading their estimate for Q1 GDP growth, one day before the Bureau of Economic Analysis and Department of Commerce release the first estimate of Q1 growth.

US Pending Home Sales fell by 1.2% MoM in March, less than the expected 1.6% drop, after sales fell 4.0% in February, the latest figures from the National Association of Realtors showed on Wednesday. That meant the US Pending Home Sales index fell to 103.7 in March, from 105.0 a month earlier. The Pending Home Sales Index (PHSI) is a forward-looking indicator of home sales based on contract signings, fell 1.2% to 103.7 in March. Year-over-year, transactions sank 8.2%. An index of 100 is equal to the level of contract activity in 2001.

Other Developments
Expectations for the Fed to implement the first of a series of 50bps rate hikes and quantitative tightening next week, negative geopolitical news and ongoing China lockdown concerns were cited by analysts as benefitting the safe-haven US dollar.

Regarding yen weakness, traders seemed to have taken the opportunity represented by the recent dip in many G10/JPY major pairs to reload on long positions, seemingly in a bet that recent risk-off flows won’t save the yen from further losses so long as the BoJ doubles down on its dovish policy stance. Speaking of, the BoJ will announce its latest monetary policy decision plus new economic forecasts during the upcoming Asia Pacific session, with any dovish vibes having the potential to exacerbate the yen’s latest drop. For reference, USD/JPY rallied more than 100 pips or 0.9% on Wednesday to the 128.30s from lows under 127.00.

EUR/USD continued its run of recent losses to fall into the mid-1.0500s and with the bears eyeing a test of 2017 lows in the 1.0330s. Analysts cited the latest ramping up of EU/Russia tensions after Gazprom halted gas flows to Poland and Bulgaria (who have refused to pay for gas in roubles) as adding geopolitical risk premia to the single currency.

As the EU continues to jawbone about another round of energy sanctions that could target both oil and gas exports, fears about energy price shortage fueled stagflation in the Eurozone remain elevated. According to some analysts, the unfavourable macroeconomic/geopolitical backdrop explains why EUR/USD has failed in recent weeks to take advantage of the ECB’s hawkish shift towards lift-off in Q3.

A stabilization in risk appetite saw major US equity bourses close modestly in the green territory and stabilization across commodity markets.

NZD/USD dropped another 0.3% to below 0.6550 but remained above its annual lows at 0.6530 and GBP/USD fell another 0.2% to below 1.2550, though support at 1.2500 held up (for now). Sterling’s better performance on Wednesday probably also owes much to the fact that over the past four sessions it has taken a historic beating as a recent string of UK economic and government borrowing data releases triggered fresh concerns about the country’s economic outlook and outlook for BoE tightening. Wednesday’s awful CBI Distributive Trades survey for April seemed to ensure that the beleaguered currency did not enjoy a likely overdue technical rebound.

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