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Monday 28 March 2022

Inflation figures from major European economies are due on Wednesday

  •  Bank of Japan intervened to stop government bond yields from rising above their key target
  • The market sees monetary policy divergence between the U.S and Japan as the key driver
  • Potentially driving the dollar this week is Friday's non-farm payroll data in the U.S

Forex market

The Japanese yen slipped nearly 1% to a six-year today after the Bank of Japan intervened to stop government bond yields from rising above its key target, while rising U.S yields pushed the dollar higher against other currencies too. 

The BOJ, which has repeatedly said it is committed to keeping monetary policy loose, on Monday made two offers to buy an unlimited amount of government bonds with maturities of more than five years and up to 10 years. The central bank is aiming to stop rising global interest rates from pushing up Japanese yields. 

The dollar climbed roughly 0.95% to 123.25 yen, its highest since December 2015. It rallied over 7% so far in March, its biggest monthly gain in over five years. The market sees monetary policy divergence between the U.S and Japan as the key driver of dollar-yen, so in contrast to the hawkish Fed comments recently, the (BOJ's action) gives the impression that the BOJ remains dovish, and that's leading to a higher dollar-yen. 

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I think the risk is still to the upside in the near term, especially if this monetary policy divergence story stays intact. But the speed has been quite fast and it does seem a little overheated, so if we see any contrary headlines, we could see some correction as well. The 10-year Treasuries yield was last at 2.5567%, its highest since May 2019, and up 6.5 basis points on the day, as traders position themselves for an aggressive series of rate hikes from the U.S Federal Reserve. 

The two-year yield was 2.412%, its highest since April 2019, with these higher rates underpinning the dollar. The greenback index against a basket of major rivals advanced 0.38% to 99.194. Inflation figures from major European economies and the Euro Zone are due from Wednesday, which could also affect the direction of the euro. 

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Also potentially driving the dollar this week is Friday's non-farm payroll data in the U.S., though given the market is already positioned for an aggressive pace of rate hikes this year, its effect could be muted say, analysts. The Aussie dollar bucked the trend, however, inching higher to $0.7513 to hold near last week's four-month high, helped on the day by rising Australian bond yields, as well as the longer-term impact of higher commodity prices. Aussie currency watchers are also looking out for Australia's budget on Tuesday.

Euro-EUR

The single currency will remain heavy this week. The balance of risks suggests EUR/USD may test 1.0800 in the coming weeks. Inflation figures from major European economies and the Eurozone are due from Wednesday, which could also affect the direction of the euro. Also potentially driving the dollar this week is Friday's nonfarm payroll data in the U.S. Overall, the EUR/USD traded with a low of 1.0979 and a high of 1.1036 before closing the day around 1.0981 in the New York session.

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Yen-JPY 

The Japanese Yen slipped nearly 1% to a six-year low on Monday, after the Bank of Japan intervened to stop government bond yields from rising above its key target while rising U.S yields pushed the dollar higher against other currencies too. The BOJ has repeatedly said it is committed to keeping monetary policy loose. Overall, the USD/JPY traded with a low of 121.16 and a high of 122.41 before closing the day around 122.13 in the U.S session.

British Pound-GBP

The British Pound steadied against the U.S dollar and euro on Friday after consumer morale fell to its lowest level in 16 months and retail sales unexpectedly declined. The Office for National Statistics said February retail sales volumes were down by 0.3% from January as stormy weather deterred some shoppers from venturing out. Overall, the GBP/USD traded with a low of 1.3157 and a high of 1.3223 before closing the day at 1.3183 in the New York session.

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Canadian Dollar-CAD

The Canadian Dollar strengthened to its highest level in more than two months against the greenback on Friday as oil prices rose and comments by a Bank of Canada deputy governor reinforced the central bank’s hawkish stance on interest rates. It was the ninth consecutive day of gains for the currency, which is the longest winning streak since August 2016. Overall, USD/CAD traded with a low of 1.2462 and a high of 1.2550 before closing the day at 1.2473 in the New York session.

Australian Dollar-AUD

The Australian Dollar has been on a tear versus most of its major peers in recent weeks, boosted by rising commodity prices and a rebound in market sentiment. Upbeat domestic economic data has also helped to lift the Aussie Dollar. Last week, Australia’s March purchasing managers’ index (PMI) for the manufacturing and services sectors showed that the post-lockdown economy continues to improve. Overall, AUD/USD traded with a low of 0.7358 and a high of 0.7416 before closing the day at 0.7410 in the New York session.

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Euro-Yen EUR/JPY

EUR/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also issuing a bullish stance. The Relative Strength Index is above 61 and lies above the neutral zone. In general, the pair has lost 0.30%.

Sterling-Yen GBP/JPY

Currently, GBP/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 60 reading and lies above the neutral zone. On the whole, the pair has lost 0.19%.

Aussie-Yen AUD/JPY

Currently, the cross is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 76 reading and lies above the neutral region. In general, the pair has lost 0.11%.

Euro-Sterling EUR/GBP

This cross is currently trading above 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 53 and lies below the neutral region. Overall, the pair has lost 0.12%.

Sterling-Swiss GBP/CHF

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 45 and lies below the neutral region. In general, the pair has gained 0.02%.

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