The dollar hit a new five-year top on the yen on Friday after a strong U.S. inflation report

• Hawkish turn from the ECB was offset by growth risks emanating from the Ukraine crisis
• The Sterling rose against the euro yesterday after a brief fall
• The Australian dollar was heading higher again today, continuing the zig-zag pattern

Forex market

The dollar hit a new five-year top on the yen on Friday after a strong U.S. inflation report, while the euro struggled to hold its own as a hawkish turn from the European Central Bank was offset by growth risks emanating from the Ukraine crisis. 

The greenback rose as high as 116.55 yen in early trade, its highest level since January 2017. The dollar is up 1.5% on the yen this week, its biggest weekly gain since October. Dollar-yen looks to be overwhelmingly a yield play. It seems the contrast between an on-hold BOJ and a Fed readying for liftoff is just too tempting to ignore.

Economic Calendar

Both the Federal Reserve and the Bank of Japan have policy meetings next week, but while the Fed is all but certain to hike rates from their pandemic low, the BOJ is set to remain an outlier and hold onto a dovish stance on monetary policy, weighing on the yen. Data on Thursday showed that U.S. consumer prices surged 7.9% year-over-year in February, the largest annual increase in 40 years, even before the surge in commodities prices caused by the war in Ukraine has had its full effect.

The CPI data basically indicates that the Fed should be hiking rates this month, but it also indicates that they will keep going with hikes at least initially. The euro was last little changed at $1.1005. It finished a choppy Thursday 0.8% lower, but in the course of the day, it had risen to as high as $1.112 and dropped as low as $1.0975. 

Trading Signals and Trading Forecasts

The more hawkish message from the ECB had a temporary upward pressure on the euro but it was very short-lived which tells you that other dynamics are overriding any considerations about what the ECB might do, including news coming from Ukraine. The ECB said yesterday it will phase out its stimulus in the third quarter, opening the door to an interest rate hike before the end of 2022 to combat soaring inflation. 

Talks between Ukraine and Russia's foreign ministers on Thursday made little apparent progress towards ending a war that is now in its third week. The war has also weighed on sterling which was languishing near a 16 month low.

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Euro

The single currency retreated from its overnight gains yesterday following the European Central Bank's announcement it will phase out its stimulus in the third quarter, while the dollar strengthened after a strong U.S. inflation report. The ECB is trailing other major central banks such as the U.S. Federal Reserve and the Bank of England. Overall, the EUR/USD traded with a low of 1.0884 and a high of 1.0665 before closing the day around 1.0934 in the New York session.

Yen

The Japanese Yen fell to a new 5 years lower after a strong U.S inflation report. The greenback rose as high as 116.55 yen in early trade, its highest level since January 2017. The dollar is up 1.5% on the yen this week, its biggest weekly gain since October. Data on Thursday showed that U.S consumer prices surged 7.9% year-over-year in February. Overall, the USD/JPY traded with a low of 114.63 and a high of 115.53 before closing the day around 114.83 in the U.S session.

British Pound

The British Pound rose against the euro yesterday after a brief fall when the European Central Bank announced it would end asset purchases earlier than expected. Meanwhile, it fell versus the dollar after easing oil prices and unsuccessful talks between Ukraine’s and Russia’s foreign ministers failed to dampen demand for safe-haven currencies. Overall, the GBP/USD traded with a low of 1.3200 and a high of 1.3353 before closing the day at 1.3238 in the New York session.

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Canadian Dollar

The Canadian Dollar was little changed against a broadly stronger U.S counterpart yesterday, with the loonie holding on to its previous day's gains as oil prices rose and U.S data showed inflation climbing to a 40-year high. The price of oil, one of Canada's major exports, bounced from a sharp drop in the previous session. Overall, USD/CAD traded with a low of 1.2667 and a high of 1.2789 before closing the day at 1.2735 in the New York session.

Australian Dollar

The Australian Dollar heading higher again today, continuing the zig-zag pattern of the week as the risk of a prolonged Russian-Ukraine conflict kept commodity prices elevated and weighed on the euro. There was much surprise in the market at news Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle had resigned to take a job in a green energy group. Overall, AUD/USD traded with a low of 0.7138 and a high of 0.7235 before closing the day at 0.7231 in the New York session.

What is Negative Balance Protection?

Euro-Yen

EUR/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 40 and lies below the neutral zone. In general, the pair has lost 1.70%.

Sterling-Yen

Currently, GBP/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 42 reading and lies below the neutral zone. On the whole, the pair has lost 1.35%.

Aussie-Yen

Currently, the cross is trading above 14, 50 and below 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 54 reading and lies above the neutral region. In general, the pair has gained 0.06%.

Euro-Sterling

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 46 and lies below the neutral region. Overall, the pair has lost 0.35%.

Sterling-Swiss

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 40 and lies below the neutral region. In general, the pair has lost 0.86%.

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