The euro has maintained relative strength against the US dollar and yen all day today, as has the Antipodean currencies. The day has been quiet bar the comments from the heads of central banks that include the Bank of England, ECB and SNB. There was also German Ifo data out this morning which came in better than expected, showing that the German domestic economy is resilient even though there are no signs of supply chain disruptions easing. There are no signs in Germany of a recession, but companies are increasing prices, so there may be a decline in demand should the outlook worsen.
ECB President Lagarde said that based on the current outlook of the European central bank, they would be able to exit negative rates in Q3 2022. Which means there is a high likely hood that they raise rates by 25bps over the course of the next two ECB meetings. Some within the bank are calling on an expedited raising of rates and were reported to be slight perturbed by the President’s comments this morning.
The EURUSD is closing the London session at its highs, having accelerated through the liquidity that was resting at the top of the daily candle from the previous FOMC meeting. The next logical level of resistance is the 1.0800 level.
I would go with a weak US dollar, rather than a string GBP as a reason for the move higher today in cable. The Bank of England Governor Bailey stated that the bank is prepared to increase rates again if needed, and that policymakers can and must take the actions needed to return inflation back to target.
The UK FTSE100 and German DAX are higher today, along with the US indices. The FTSE and DAX are up 1.57% and 1.38% respectively and the DJIA is leading the global indices higher with a 2.19% rise at the time of writing. There was a big options expiry last Friday as it was the 3rd Friday of the month. Now that those flows have been removed, the rebalancing is positive for the indices into the end of the month.
The break of market structure in the US dollar index has been a significant move in the forex markets. What happens next is key to how we trade for the next couple of months. If this was just a look below and we see the US dollar back in the range and then attacking $104 in the next couple of days, lots of traders in the major crosses will be caught on the wrong side of the trade. There could be a repricing if the FOMC meeting minutes are not as hawkish as analysts would like, as could there be if the PCE on Friday comes in weaker than expected.