DXY-U.S. dollar index hits 100 mark pushing Euro down to $1,08

Posted on April 8, 2022April 19, 2022 by Vrasidas Neofytou

The DXY-U. S dollar index keeps pushing higher towards the 100 key psychological level amid the aggressively Federal Reserve’s hawkish stance and the soaring bond yields at a time other major peers showed weakness following the Ukraine war and growing risks of stagnation and stagflation.

DXY-U.S. dollar index, Weekly chart

DXY index which measures the greenback against six major currencies climbed to as high as 99,90 on Friday morning, its strongest since May 2020, and it being just shy away from the much-awaited resistance of the 100.00 mark, as investors appraised the likelihood of tighter monetary policy from the Federal Reserve to curb inflation.

Speculation about the Federal Reserve’s next moves support the greenback and boosts the 10-year Treasury yields up to 2,70%-the highest since 2018-since the central bank has started applying a more aggressive stance on inflation, by most probably hiking rates by 50 basis points in the next FOMC meeting in May and by reducing its balance sheet at a rate of about $95 billion per month.

Fed’s aggressive monetary actions are necessary to limit the extra liquidity in the market which is part of the massive stimulus it pumped into the U.S. economy and the accommodative zero-interest policy after the COVID-19 pandemic struck in 2020.

Euro weakness after the Ukraine war:

The recent bullish momentum on the U.S dollar and bond yields has weighed on other major currencies, especially the Euro and Japanese Yen which depreciated to multi-year lows of $1,08 and ¥125 respectively.

EUR/USD pair, Weekly chart

The common currency remains trapped in the developments of the Russia-Ukraine war since the sanctions on Russian raw materials hit mainly the Eurozone’s economic activity than other economies around the world.

The European Union has agreed to ban coal imports from Russia, the first time that the bans have targeted Russia’s crucial energy revenues following the Russian Armed Forces’ atrocities against civilians in Bucha city of Ukraine.

European manufacturing and construction industries heavily depend on Russian commodities imports, so any signal of an escalation would also weigh on the common currency, deteriorating the outlook for the Eurozone economy, and soaring the concerns about stagnation and stagflation risks to Europe.

Canadian dollar jumps up to C$1,24 on surging commodity prices and solid economy

Posted on April 6, 2022April 18, 2022 by Vrasidas Neofytou

The commodity-linked Canadian dollar has been one of the few winners of the Russian invasion of Ukraine, adding more than 500 pips since the beginning of March against the U.S. dollar and other major peers, getting support from the soaring prices across the commodities complex and the better-than-expected economic recovery after the pandemic.

USD/CAD pair, 4-hour chart

The loonie appreciated to as high as C$1,24 to the greenback on Tuesday, April 05, touching its strongest level since November 10, 2021, before losing some steam after the hawkish comments from Fed’s Governor Lael Brainard that she expects a combination of higher interest rates on dollar and a rapid balance sheet runoff to curb inflation.

Loonie boosts from higher commodities prices and economic strength:

Commodities prices have gained more than 20% since the start of the Russian invasion of Ukraine on February 24, 2022, and more than 30% since the beginning of the year, on growing concerns about supply disruptions in major raw materials such as crude oil, metals, natural gas, and grains amid the military operations and the economic sanctions to Russia to stop the war.

The higher commodities prices and the ongoing geopolitical tensions in the Middle East and Ukraine benefit the Canadian dollar together with the other commodities-linked currencies such as Australia and New Zealand dollars since they keep fuelling supply concerns at a time of demand for commodities ramp up from the pandemic.

Brent crude climbed to as high as $140/b on March 07, 2022, before the retreat to near $105/b, while copper, iron ore, nickel, palladium, gold, silver, aluminium, and grains hit multi-year highs on fears for supply shortfalls.

Loonie has also gotten support from the solid economic growth in Canada as the real GDP expanded by 0,8% MoM in February, and it has also been 1% above its pre-pandemic levels. On top of that, canadian data showed that exports rose 2.8% in February to a record high, driven mostly by energy products, including crude oil and natural gas.

Furthermore, forex traders jumped into Loonie as the Bank of Canada is expected to hike rates by 50 basis points at the April 13 monetary meeting.

WTI falls below $99/b on Yemen truce and SPR releases

Posted on April 4, 2022September 28, 2022 by Vrasidas Neofytou

The price of the U.S.-based WTI crude oil contract fell below $99/b and Brent crude below $104/b on Monday morning as investors weigh the news of a truce in Yemen for the first time in seven years coupled with the coordinated release of oil supplies from SPR- strategic crude oil reserves from main countries such as U.S, Japan, and the UK.

WTI crude oil price, 2-hour chart

Both Brent and WTI crude prices have lost more than 25% since hitting a 14-year high of $140/b and $130/b respectively at the beginning of March, as energy investors factored the worst-case scenario by losing all 11 million bpd Russian crude export after Russia invaded Ukraine at a time that global inventories were at record low levels, while OPEC group was hesitating to ramp-up production.

Lower price risk premium after the Yemen truce:

A geopolitical risk premium was removed from the crude oil prices this morning after the Iran-backed Yemen Houthi group and the United Arab Emirates welcomed a U.N.-brokered truce in Yemen.

According to the UN, the 2-month truce will allow the fuel imports into Houthi-held areas and some flights to operate from Sanaa airport.

The ceasefire would halt the military conflict between Houthis rebels and the Saudi Arabia-UAE coalition within Yemen’s borders for the first time since the start of the war 7 years ago.

This is a bearish event for oil prices since it is easing (temporarily) the threats to energy supplies in the oil-rich Middle East, especially after the recent Houthi drone attacks on Saudi Aramco’s oil facilities near Yemen borders.

The war was also an ongoing threat to energy supplies from the Bab-el-Mandeb strait, which it’s a strategic maritime link between the Indian Ocean and the Mediterranean Sea via the Red Sea and the Suez Canal, transporting more than 3,5 million bpd of oil by tankers.

Coordinated SPR releases:

Crude oil prices lost more than 12% last week, their biggest weekly losses since 2020, when U.S. President Joe Biden announced the release of 1 million bpd of crude oil for six months from May on Thursday, which at 180 million barrels is the largest release ever from the U.S. Strategic Petroleum Reserve (SPR).

At the same time, more countries, and organisations such as the UK, Japan, and IEA- International Energy Agency have pledged to release crude oil from their SPR as well, in a coordinated effort to provide an increased amount of supply in the already tight global energy market and balance off any Russian disruptions, and eventually to cool off the record-high oil and gas prices.