Rising U.S. interest rates and safe haven flows have seen the U.S. dollar soar in 2022. The American 10-yr yield rose six basis points to 3.12%, hitting a fresh high for the year while the 2-yr yield fell five basis points to 2.67%. The US Dollar Index (DXY) hit a 20-year high, the highest levels since 2002. The weakest component of the index has been the Japanese yen, sliding around 12 per cent against the dollar and underperforming even weak emerging market currencies. The Greenback reached multiyear highs against the euro, the British pound and the yen in April with the positive rate differentials, a huge part of the dollar’s strength.
The BoJ has said Japan’s cyclical position with low core inflation and a more limited rebound in economic output warrants an easier monetary policy stance compared with its G10 peers. A strengthening dollar also tends to weigh heavily on emerging markets currencies, a rising dollar makes dollar-denominated debt more expensive for emerging nations to repay.
John Maynard Keynes, 1920: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in a million is able to diagnose.”
For the week, the U.S. Dollar Index jumped 0.7% to 103.66 (up 8.4% y-t-d), trading this week to a nine-year high
- For the week on the upside, the Australian dollar 0.2% and the euro 0.1%.
- On the downside, the British pound 1.8%, the Swiss franc 1.7%, the Japanese yen 0.7%, the Canadian dollar 0.2%
- For the week on the upside, the Mexican peso increased 1.5%
- On the downside, the Brazilian real declined 2.1%, the South Korean won 1.4%, the South African rand 1.3%, the Swedish krona 1.3%, the Norwegian krone 1.1%, the New Zealand dollar 0.7%, the Singapore dollar 0.1%. The Chinese (onshore) renminbi declined 0.87% versus the dollar (down 4.66% y-t-d).
The yen has been the worst performing major currency in 2022, sliding around 12 per cent against the US dollar. Relative to a basket of trading partner currencies and adjusted for inflation, the yen has fallen to levels last seen before the 1985 Plaza Accord.
Asian currencies had a dismal April, decline included the Japanese yen down 6.2%, the South Korean won 3.5%, the Malaysian ringgit 3.5%, the Thai baht 2.9%, the Taiwanese dollar 2.9% and the Singapore dollar 2.1%.
Asia Credit default swap (CDS) prices increased notably this week and during April.
For the month, Philippines CDS rose 32 bps (to 111bps), Vietnam 25 bps (137bps), Malaysia 25 bps (92 bps), India 22 bps (127bps), Indonesia 21 bps (106bps), and South Korea 12 bps (41bps).
Also factor in that Asia is the epicenter of technology manufacturing – with the global “tech” Bubble in grave jeopardy. The confluence of China’s bursting Bubble, Japan’s foolhardy monetary policy gambit, and highly levered systems puts Asia today on a Collision Course with rapidly deteriorating macro and micro fundamentals. I’ll assume mounting hedge fund and derivative issues.
Japanese Yen – USDJPY
USDJPY broke above after weakness with Treasury yields to rush to +2/8 and channel convergence at 132.00. The price has accelerated after the close above the Tankan over 114. The Murrey Math level should remain massive support for dollar-yen. Any change will come from the weekly Kijun as it breaks through the old channel. Use your USDJPY Murrey grid for now. EURJPY AUDJPY will determine risk on/off
The Bank of Japan reinforced its commitment to low interest rates despite the rising inflation. The BoJ said it would purchase 10-year Japanese government bonds at a yield of 0.25% every business day to ensure that the yield doesn’t exceed that level. That sent the yen weakening to more than 130 to the dollar for the first time since April 2002.
Yen weakness places Chinese manufactures at a competitive disadvantage, which has emboldened Beijing to play the currency devaluation card in an attempt to mitigate mounting economic woes and dumping of Chinese assets. Higher-yielding Chinese debt securities are losing their relative appeal (in a rising yield world), and now even the perceived stability of the Chinese currency is in question.
- USD/CNY is the onshore yuan and is permitted to trade plus or minus 2% from the daily reference rate.
- CNH is the offshore yuan. USD/CNH has no restrictions on its trading range.
- A significantly stronger or weaker rate than expected is typically considered a signal from the PBOC.
The CNY was the weakest since November 5 last year, an 18-month low of 6.7469, extending heavy losses sustained in April, after Beijing warned against criticism of its dynamic zero-COVID policy. The zero-tolerance approach, which depends on strictest lockdowns and mass testing, has weighed heavily on the already slowing economy and raised the need for further policy easing.
April 28 – Bloomberg (Sofia Horta e Costa and Tania Chen): “When China’s tightly managed currency depreciates dramatically against the dollar, it can be hard to stop. More than six years after China’s shock 2015 devaluation roiled global markets and spurred an estimated $1 trillion in capital flight, the yuan is weakening at a similar pace. Onshore it’s lost nearly 4% in eight days, while the offshore rate is heading for its worst month relative to the greenback in history. Selling momentum is the strongest since the height of Donald Trump’s trade war in 2018.”
Australian Dollar – AUDUSD
The Aussie dollar since completing a 5 at the pysch 80 level to fall under the weekly cloud in emotive fashion. The Australian dollar fell to test of the August lows of 0.7106 with Omicron fears and revisited those. Should the recent double bottom go support is the Murrey Math Levels. Resistance the Cloud, Tenkan and Kijun like many commodities.
New Zealand Dollar – NZDUSD
The Kiwi mirrored the AUD in its wave (iii) spit and has corrected at the cloud much of the FOMO muster wave and rejected the 50% Fib & 4/8 confluence. Kijun and Tenkan Resistance, which is pivotal. Support previous break spits and channel.
Canadian Dollar – USDCAD
The Loonie broke the Tenkan after a 3 year high in June and corrected that in 3 waves led by the AUD and NZD. Higher USD has negated oil price impacting direction. Watch flat Kijun and Tenkan at -1/8. Use Fibs for support and resistance.
The European Central Bank continues to lag behind the Fed in tightening monetary policy, ECB President Christine Lagarde said earlier this month, noting that the euro area’s economy is likely to absorb a greater blow from the war in Ukraine.
Euro – EURUSD
The dollar rose 0.57% against the euro Thursday, closing at $1.05, the euro’s lowest closing rate since 2017. Euro continues to correct in what seems like eternal flags in the channel. We watch if Kijun (pink) testing Tenkan (orange) creates any impulse as EURUSD collapses in the channel. Watch 3 waves to see development for continuation. Watch for impulse off Chikou rebalance. Again, governed by EURGBP and Bund volatility.
British Pound – GBPUSD
British pound classic retest of daily cloud break with magnet pull of cloud twist after ABC correction failure. Will need Tenkan to break through Kijun for strength. The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound.
Euro Pound – EURGBP
Back testing Tenkan in a C or 3 after inconclusive X – symbolic of BREXIT? Kijun, 50wma and clouds resistance.
Mexican Peso USDMXN
The Peso continues in the long triangle and consolidated despite outside uncertainty from oil and COVID19. Use the Gann octave and the extension fibs to help measure the noise.
Turkish Lire USDTRY
The Turkish Lira reversed after falling in 3 waves to explode over the Tenkan with the weekly cloud Kijun and 50wma below. The Murrey Math and Fib targets offer targets with the Lire at all-time lows resistance in a hyper inflating collapse
Sources: Finviz, TC
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