Overnight Headlines

*Global equity selloff rumbles on as treasury yields continue to climb

*Oil prices rise to a seven-year high after Turkish pipeline outage

*UK inflation hits 30-year high beating estimates (5.4% vs 5.2%)

*China reports fewest daily local confirmed Covid cases in two weeks

USD rose for a third day seeing sharp gains against its peers on the surge in US yields. The DXY has rebounded strongly from its 100-day SMA and long-term trendline support. Similarly, the euro is now back to its 50-day SMA and trading below trendline resistance. GBP fell for a third day back to the falling trendline from the June high around 1.36. EUR/GBP moved down to recent lows after it hit resistance at 0.8378. USD/CAD is trading sideways around the 200-day SMA at 1.25. The rising oil price supports the loonie while the dollar is bid.

US equities endured a sharp selloff as yields hit levels last seen a year ago. The rotation from growth to value stocks continued, as investors went hard into defensive, large cap stocks with low vols. The Nasdaq, with companies most sensitive to rising rates fell 2.6%. The broader S&P500 fell 1.8% as Goldman Sachs was the latest bank to disappoint after earnings undershot analysts’ forecasts and cost pressures affected margins. Asian stocks are lower with both European and US futures firmly negative.

Market Thoughts – About-turn in FX

There is a lot going in markets at present with impactful news pushing and pulling old and new themes. Earnings misses among large US banks are now mixing with resilient commodity prices, softer US data and the ongoing surge in bond yields.

The clear winners in the FX space this week so far have been the safe haven dollar and yen, with CAD performing well on the back of high oil prices. EUR is suffering as conflict worries between Russia and Ukraine increase with what seems like a last ditch “resolution” meeting on Friday. Risk off trades could build in this environment with yen crosses especially enjoying some support.

Chart of the Day – EUR/USD back into range

We saw EUR selling among the crosses yesterday as tensions in Ukraine ramped up. EUR/CHF and EUR/JPY fell sharply while EUR/CAD dropped to long-term support. German business survey data also showed that supply chain issues continue to limit the country’s industrial capacity.

The bid in the dollar added to the mix in the world’s most traded pair. The euro will remain at a disadvantage versus the greenback due to more modest economic growth and depressed interest rates.

Trendline resistance again capped more upside in the major with highs at 1.1482. Three days of selling see prices back to the 50-day SMA above 1.13 but back in the previous range. First support is 1.1225 with resistance around 1.14.