Euro Extends Rally, DXY Drops, Bank Stocks Rebound

Risk-On; FOMC Expected to Deliver 0.25% Rate Hike

Summary:

Shares of US regional banks rose sharply lifting Wall Street. The DOW rallied 0.98%. The Dollar Index (DXY), which measures the Greenback’s value against a basket of 6 major currencies, tumbled to 102.81 (103.85).

US regulators assurances that they were ready to take more action to aid depositors lifted bank shares. US Treasury Secretary Janet Yellen added that the banking system was sound.

The Fed is widely expected to raise interest rates by 25 basis points to 5% following their meeting early tomorrow morning (5 am Sydney, 23 March). Global bond yields rallied. The US 10-year soared 16 bps to 3.59%.

The Euro (EUR/USD) extended its gains, climbing 0.46% to 1.0767 from 1.0665 yesterday. Sterling (GBP/USD) rallied against the broadly based weaker Greenback to 1.2215 (1.2180).

Against the Japanese Yen, the US Dollar settled 0.86% higher at 132.52 from 131.85 yesterday. The Australian Dollar (AUD/USD), however eased against the Greenback to 0.6670 (0.6700).

The US Dollar closed mixed against its Asian and Emerging Market peers. USD/CNH (Dollar-Offshore Chinese Yuan) slid to 6.8785 (6.8900) while USD/THB soared to 34.47 from 33.75 yesterday.

Economic data released yesterday saw the Eurozone ZEW March Economic Sentiment Survey drop to 10 from a previous 29.7, and median forecasts at 23.2. Germany’s March ZEW Economic Sentiment fell to 13 from a previous 28.1, and lower than expectations of 16.4.

Canada’s BOC (Bank of Canada) Core CPI for February (m/m) fell to 0.5% from 0.8%. On an annual basis Canadian Core CPI dipped to 4.7% from 5.0%, but higher than estimates of 4.6%.

US Existing Home Sales climbed to 4.58 million units from a previous 4.0 million, beating estimates of 4.19 million. New Zealand’s Global Dairy Trade Price Index slumped to -2.6% from -0.7%.

• EUR/USD – The shared currency extended its gains versus the Greenback, climbing 0.46% to 1.0767 at the New York close. Yesterday, the EUR/USD pair was at 1.0667. Broad-based US Dollar weakness saw the Euro trade to an overnight high at 1.0789.
• AUD/USD – Despite the improvement of risk sentiment, the Australian Dollar lost ground against the Greenback and other rivals. The Aussie lost ground, finishing at 0.6670 from 0.6700 yesterday. In choppy trade, the overnight high recorded was at 0.6727.
• USD/JPY – The rally in the US 10-year bond yield to 3.59% from yesterday’s 3.43% lifted this currency pair. On another volatile session, the US Dollar plummeted to an overnight low at 131.03 before rebounding. Overnight high recorded was at 132.63.
• GBP/USD – Sterling managed to gain modestly against the overall weaker Greenback, settling at 1.2215 (1.2180 yesterday). Overnight high traded for the British Pound was at 1.2282. In choppy trade of its own, GBP/USD hit a low at 1.2179.

On the Lookout:

Ahead of tomorrow’s FOMC decision, today’s economic calendar is light. Australia releases its M1 Leading Index (no f/c, previous was -0.1%. The UK kicks off European data with its Headline and Core CPI reports: Headline CPI (m/m f/c 0.6% from -0.6% - ACY Finlogix). UK Core CPI y/y f/c 5.7% from 5.8% - ACY Finlogix). Switzerland follows with its Current Account (f/c +CHF 16.2 billion from a previous +CHF 24 billion – ACY Finlogix). The UK releases its March CBI Industrial Trends Orders (f/c -15 from -16 – ACY Finlogix). Canada starts off North America with its February New Housing Price Index (m/m f/c -0.3% from -0.2%; y/y f/c 1.8% from 2.7% - ACY Finlogix). The Bank of Canada releases its Summary of Deliberations. The FOMC is expected to raise its Fed Funds rate to 5% from 4.75% - ACY Finlogix). The FOMC Press Conference follows (5.30 am Sydney, 23 March).

Trading Perspective:

The Dollar eased against most of its Rivals as risk appetite improved ahead of tomorrow’s FOMC meeting. The Federal Reserve is widely expected to hike its Fed Funds rate to 5% from 4.75%. There are, however some calls for a “no change” decision. Some (a minority) are looking for a rate cut. What that ensures is heightened volatility during the US session.

In Asia today, expect FX to trade within their ranges which were established overnight. The ranges are wide and there is a lot of room to move between them. Expect choppy conditions as traders adjust their positions. Get ready to rumble. 

• EUR/USD – The Euro’s rally this week has been impressive. On Monday, the shared currency was trading around 1.0665. Yesterday, the EUR/USD pair closed at 1.0767. On the day, look for immediate resistance to cap any rallies at 1.0790. The next resistance level is found at 1.0820 and 1.0850. On the downside, look for immediate support at 1.0735 and 1.0705. Ahead of the FOMC  for the EUR/USD to trade in a likely range between 1.0710 and 1.0790.
• USD/JPY – Boosted by a lift in US bond yields, the Greenback soared 0.86% against the Yen to 132.52. Look for immediate resistance at 132.65 (overnight high traded was at 132.63). The next resistance level is found at 132.95. Immediate support can be found at 132.20, 131.80 and 131.50. Look for further choppy trade in a likely range today of 131.30-132.80.
• AUD/USD – Against the trend, the Australian Battler eased against the Greenback to 0.6670 from 0.6700 yesterday. On the day, look for immediate support on the Aussie at 0.6650 and 0.6620 to hold. Immediate resistance can be found at 0.6700, 0.6730 and 0.6760. Expect a choppy session in the AUD/USD pair, with a likely range of 0.6640-0.6740. Look to sell rallies.
• GBP/USD – Sterling rebounded against the overall weaker US Dollar to 1.2215 from yesterday’s open at 1.2180. For today look for Immediate resistance at 1.2245 and 1.2285 (overnight high 1.2282) to cap. Immediate support can be found at 1.2180, 1.2150 and 1.2120. Look for the British Pound to trade a likely range today between 1.2180-1.2280. Preference is still to sell rallies.

Another busy week in the world of FX with still more to come. Have a good Wednesday ahead all.

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