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Apr 26 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Drops Near 2020 Pandemic Bottom As Havens Sought

By Randolph Donney  —  Apr 26 - 03:00 PM

EUR/USD fell on Tuesday, nearing its early pandemic trough of 1.0636 and sterling tumbled to its lowest since July 2020 as global worries about geopolitical tensions and economic uncertainty sent investors clamoring for safe havens.

As the dollar index closed in on its 102.99 pandemic peak, only the yen -- the other major foreign exchange haven -- gained against the U.S. currency, though USD/JPY held above key support even as the crosses tumbled further amid global derisking flows.

China announced new measures to support its slowing economy nL2N2WO0TV, though its zero COVID policy nL2N2WO06C remains a weight on growth.

Russia's nuclear saber-rattling reminded markets of the escalating risks from the war in Ukraine nL5N2WJ2MYnL2N2WN2LW.
Russian energy giant Gazprom GAZP.MM told Poland's PGNiG PGN.WA it will halt gas supplies along the Yamal pipeline from Wednesday morning, but the Polish government said it had sufficient reserves.

Investors remain uneasy about the Fed and other central banks' ability to fight inflation without triggering financial instability and recession, sending dollar-positive flows into the relative safety and higher yields of Treasuries.

Markets project the Fed will hike another 234bps by year-end, with federal funds peaking near 3% the following year or so, versus ECB rates seen cresting at roughly half that.

EUR/USD flirted with 5-year lows even as safe-haven flows boosted Bund-Treasury yield spreads.

EUR/USD was down 0.65% near the day's low of 1.0642 and in danger of eventually skidding down to 2017's 1.0340 lows nL2N2WO1DU.

Sterling was down 1.2%, near the 61.8% Fibo of the entire pandemic range at 1.2497.

Markets expect the BoE to raise rates to 2.11%, lagging the Fed nL2N2WO179.

USD/JPY was down 0.44% after earlier slipping to Tuesday's 127.03 EBS low by the April.
19 low and on-close pivot point at 126.98.

Broader risk-off flows into the carry-trade funding yen sent EUR/JPY, AUD/JPY and GBP/JPY down 1%, 0.75% and 1.6%, respectively.

USD/JPY's drop was cushioned after Japanese Prime Minister Fumio Kishida urged the BOJ to maintain its ultra-loose monetary policy, brushing aside the idea of using interest rate hikes to prevent further declines in the yen nL2N2WO1H9.

Finance Minister Shunichi Suzuki said there was "no truth" to media reports that he had discussed with U.S. Treasury Secretary Janet Yellen a joint currency intervention to stem yen weakness during their meeting last week nT9N2WH00L.

The first daily close below a daily on-close pivot point and 10-day moving average, at 126.98/127.43 last, since the March.
4, 114.655 close would increase risk of a further correction from April's 20-year peak at 129.43 into or after Thursday's BOJ meeting.

USD/CNH was up 0.33%, extending its recent breakout, despite the PBOC's 100bp cut in the FX reserve ratio, as the CSI300 hit its lowest in two years.

High-beta and crypto-currencies all suffered.

Wednesday features second-tier U.S. data, leaving focus on China and Ukraine.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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