The risk-on sentiment has given the forex market a bit of a reprieve from the US dollar dominance with the likes of AUDUSD and EURUSD trading within previous’ days ranges. Microsoft came through with a really good earnings report which helped boost the risk markets.
A quick look at the global indices today as the London session comes to a close show that it's not just the US stocks that have rebounded today following the earnings report from Microsoft. The company's earnings, revenues and sales forecasts topped estimates. This could all be 180º different after the Fed's decision later today.
The Nasdaq and S&P500 are up 2.42% and 1.64% respectively, closely followed by the German DAX rising by 2.22%
In its first meeting of 2022, the Bank of Canada maintained its overnight rate target at 0.25%, in line with forecasts. However, it removes its exceptional forward guidance, implying that the overall economic slack is now absorbed, paving the way for a rate hike. In addition, the Bank of Canada will maintain the current amount of bonds it holds on its balance sheet until it begins raising the policy rate.
The oil futures market continued to rise today, and have pushed through seven-year highs, likely due to fears of further escalation of the Ukraine standoff between western countries and Russia, which may affect global supply.
The market sentiment did not change as a result of the US Energy Information Administration's (EIA) latest report showing crude inventories grew by 2.4 million barrels.
US crude oil refinery inputs averaged 15.5 million barrels per day, up by 44,000 barrels per day from the average recorded the week prior. Refineries operated at 87.7% of their capacity, while gasoline production increased, averaging 8.9 million barrels per day. Total commercial petroleum inventories decreased by 4.1 million barrels. Brent is reaching for $90 per barrel, with some banks predicting we get to $100 per barrel in 2022.
The US Census Bureau stated in its advanced report published earlier, that the US international trade deficit in December increased by 3.0% or $2.9 billion compared to the previous month. The US traditionally imports more than it exports and this has been deflationary. With the supply chain shock, some are now calling for less reliance on foreign manufacturers, so this statistic will be an indication of whether production is returning to the US in the future.
In a couple of hours, the US dollar should be on course to either find new highs or to test the $94.60 and $93.46 levels. The hawkish Fed will be the catalyst for further appreciation in the dollar assuming that traders are not disappointed with the forward guidance regarding May’s rate hike.
The forex heatmap was risk-on this morning as it is now and gave a decent early indication of what was in store for the US open.
The AUDUSD may have been relatively strong today but the price action on the daily chart shows that today’s trading range is still within Mondays high and low print. If the DXY breaks lower, the AUDUSD will initially run into the dynamic resistance of the 20 & 50-period EMAs.