Comment: US recap: EUR/USD rebound fizzles before Friday's lows as risks persist

Applied Energetics

27/09/2022 19:52

Sept 27 (Reuters) - The dollar rose on Tuesday after unexpectedly strong
U.S. home sales and consumer confidence reports enhanced the U.S. economic
outlook, in contrast to Europe's increasingly dire inflation and recession risks
that sent gilt and euro zone bond yields sharply higher and riskier assets
lower.
    Brief and corrective dollar pullbacks against the euro and sterling hit the
wall by Friday's 0.9668 and 1.0840 lows. 
    Massive gilt yields gains of 27bp and 39bp in 2-year and 10-year tenors
spread across European government bonds and to less extent Treasuries, funneling
funds back into the relative safety of the dollar.
    Though strong, above forecast U.S. single-family home sales  urn:newsml:reuters.com:*:nAQN1TFH29 and
consumer confidence  urn:newsml:reuters.com:*:nS0N2Z701T also displayed modest signs of disinflation.
    Dollar-supported upside in short-term Treasury yields diminished following
St. Louis Fed President James Bullard's comment that fed funds would probably
peak near 4.5%, a level market pricing had already slightly surpassed
 urn:newsml:reuters.com:*:nL1N30Y1DI.
    Sterling was about flat after slipping from Tuesday's 1.0837 high, which is
near Friday's low, but failed to sustain the rebound from Monday's 1.0327 record
low even after BoE Chief Economist Huw Pill said the UK central bank is likely
to deliver a "significant policy response" to the government's fiscal stimulus
plans  urn:newsml:reuters.com:*:nL1N30Y1KZ.
    EUR/USD was down about 0.1% and 1% off Tuesday's 0.9670 high on EBS. The
euro's outlook is dimmed by the deteriorating prospects for Europe's economy
amid increasing energy insecurity  urn:newsml:reuters.com:*:nL8N30Y1K7 that threatens significant losses
for businesses and soaring costs for consumers and governments trying subsidize
energy costs  urn:newsml:reuters.com:*:nL1N30Y17H.
    USD/JPY's early dip with Treasury yields reversed in NorAm trading, lifting
prices close to major 145 options expiries this week and ahead of Thursday's
24-year peak at 145.90 on EBS that triggered Japanese intervention.
    But Tuesday's BOJ yield curve control buying of JGBs to cap 10-year yields
at 0.25% reinforced the impression that monetary policy would not be giving the
MOF any assistance in supporting the yen anytime soon. 
    Therefore, USD/JPY drops on intervention are buying opportunities unless
U.S. disinflation takes hold faster than expected and peak Fed funds pricing has
already been witnessed.
    Otherwise, a close above 145 would suggest 145.90 is in play, and perhaps
tech targets near 150  urn:newsml:reuters.com:*:nL1N30Y111.
    High-beta currencies also shed earlier gains. And a strong start for bitcoin
and ether became losses as the S&P 500 breached June's major lows.
    Russia-related risks and energy price cap plans will be watched along with
U.S. PCE data Friday, followed by non-farm payrolls next Friday. 
For more click on  FXBUZ 
 (Editing by Burton Frierson
Randolph Donney is a Reuters market analyst. The views expressed are his own.)
 ((Randolph.donney@thomsonreuters.com))