Geopolitical developments have darkened clouds over the global economy

•  The dollar gained in yesterday’s trading session, rising for three straight sessions
• Civilian killings in Ukraine and the prospect of increased sanctions pushed investors to seek safety
• The dollar is bouncing higher as geopolitical developments have darkened clouds
• Data on Friday showed U.S unemployment hit a two-year low of 3.6% last month

Forex market

The dollar gained yesterday, rising for three straight sessions, as civilian killings in north Ukraine and the prospect of increased sanctions pushed investors to seek safety in the greenback. The U.S. currency also continued to benefit from a strong non-farm payrolls report for March that backed expectations for a hefty half a percentage point tightening by the Federal Reserve at next month's meeting. 

The dollar is bouncing higher as geopolitical developments have darkened clouds over the global economy. The buck was already enjoying jobs-inspired gains after solid hiring and lower unemployment cemented expectations of super-sized U.S. rate hikes this year. French President Emmanuel Macron called for new sanctions and said there were clear indications

Economic Calendar

Russian forces had committed war crimes in the town of Bucha. The Kremlin denied any accusations related to the murder of civilians in the town. German Defence Minister Christine Lambrecht said the European Union should discuss ending Russian gas imports. Russia supplies some 40% of Europe's gas needs. 

In late morning trading, the dollar, which measures the greenback against a basket of peers rose 0.3% to 98.89. Data on Friday showed U.S. unemployment hit a two-year low of 3.6% last month, leading investors to assess if the numbers would strengthen the Fed's resolve to tackle inflation by lifting rates sharply. 

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The euro, which has been under pressure due to worries about the economic damage from the war in Ukraine, fell 0.6% to 0.4% versus the dollar to $1.0988. Against sterling, the euro fell to a six-day low and it was last down 0.6% at 83.73 pence. More sanctions of course also mean that the risk of energy disruptions in Europe rises, because of our own sanctions or because Russia might get completely serious with its counter-sanctions rather than just changing the payment mode for natural gas. 

In my view, the risk of significant euro weakness increases. Fed funds futures on Friday have priced an 80% chance of a 50 basis point hike next month.

Euro-EUR

The single currency fell as investor morale in the eurozone fell to its lowest level in nearly two years in April, a survey showed yesterday, pointing to the beginning of a recession in the second quarter of 2022. Sentix's index for the eurozone fell to -18.0 in April from -7.0 the previous month, hitting its lowest level since July 2020. 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.

Crypto Signals

Japanese Yen-JPY

The Japanese Yen steadied as the dollar gained yesterday, rising for three straight sessions, as civilian killings in north Ukraine and the prospect of increased sanctions pushed investors to seek safety in the greenback. The U.S. currency also continued to benefit from a strong non-farm payrolls report for March. 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 gained versus the euro yesterday as traders continue to bet on a rapid pace of interest rate rises from the Bank of England. Despite much focus on the heaviest cost of living raise since British records began (the 1950s), the market still prices the BoE Bank Rate at 2.20% at the December meeting later this year. 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 traded lower as a record number of Canadian businesses are facing capacity pressures amid intense labor shortages and ongoing supply chain difficulties, with many expecting significant wage and input price growth, a regular Bank of Canada survey said yesterday. The central bank's Business Outlook Survey Indicator dipped in the first quarter. 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 struggled at these levels for the past two weeks but has tentatively broken higher. China reported a record number of covid cases but that might be outweighed by the restart of idled Evergrande construction projects. The broader signal there is that Beijing is pulling on growth levers that will demand more commodity exports from Australia. 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.

Day Trading or Swing Trading?

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/CH

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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