US Open Note – No mercy for the euro; BoJ policy decision, Meta earnings next in focus

Euro plummets as Russian gas issues resurface

There was no mercy for the depressed euro during the late European trading hours on Wednesday. The already squeezed common currency sank to the lowest point since April 2017 against the US dollar, remaining the worst performer across the board as Russia’s state-owned multinational gas supplier Gazprom completely halted supplies to NATO members Poland and Bulgaria because of non-payments in roubles.

Of course, the EU’s powerhouse Germany, which gets 40% of its gas supplies from Russia, has not been affected yet, with the minister of finance saying that energy security is assured, though a volume reduction could still be possible as Bulgaria and Poland are considered transit states to third countries in Europe.

Consequently, the latest spike in geopolitical tensions is further clouding the inflation and, overall, the economic outlook in the euro area. Even rate hike calls from ECB policymakers could not save the battered euro recently, reflecting its large dependency on the Ukrainian war. Nevertheless, from a technical perspective, a rebound cannot be excluded, as the psychological 1.0500 number is within breathing distance.

Pound suffers too 

The pound was also been beaten hard, plunging to a 21-month low of 1.2526 earlier today after pulling below the 1.2600 round level. Unlike the Fed, which continues to feed the dollar bulls through its aggressive rate hike talk, the Bank of England has adopted a more cautious approach to monetary tightening in fear of adverse effects on consumer spending. Today’s CBI business report displayed an abnormal slump in April’s retail sales for the first time in a year, justifying the BoE’s stance. Also, domestic stats showed that government borrowing in the 2021/2022 period was approximately 20% higher than expected.

Euro/pound decelerated to 0.8400 after attempting to cross above the 200-day simple moving average at 0.8465.

The slump in the European currencies added more fuel to the dollar index’s impressive rally, driving it directly to a five-year high of 103.00.

BoJ decides on policy

In other currencies, the Japanese yen is giving up some ground to the dollar, the pound and the antipodean currencies ahead of the Bank of Japan’s policy announcement early on Thursday. Although the BoJ faces no pressure to change its super accommodative policy because of  muted inflation, it is struggling to sustain its yield curve control, while the yen’s freefall is another headache as its major peers move forward with stimulus reduction measures. Hence, even if the central bank keeps its policy settings steady, a hawkish tilt or, at least, a less dovish guidance cannot be ruled out.

Wall Street heals its wounds but waits for Meta earnings

Regarding stock markets, Wall Street switched to a recovery mode with scope to recoup yesterday’s Alphabet-led dramatic decline. Earnings from Facebook’s parent Meta platforms will be the next highlight in the calendar today after the closing bell. Another miss could bolster the free-fall in US indices.

In Europe, the pan-European STOXX 600 is eyeing a mildly positive close thanks to the pickup in basic material shares.

Gold resumes decline

Turning to commodities, oil is trading quietly around the $100.00/barrel number, unable to save the Canadian dollar from the greenback’s strength. Perhaps the dollar’s dominance is partially responsible for gold's bearish momentum, pressing the precious metal to a two-month low of $1,881/ounce.


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