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Forex news: ECB warns on EUR weakness; NZD and AUD fall on recession signs

By Piero Cingari

09:10, 16 May 2022

One Euro coin on black background
Will the ECB intervene to prevent the euro from reaching parity with the dollar? – Photo: Getty Images

The euro’s recent free-fall halted at the start of the week, after Banque de France governor Francois Villeroy de Galhau cautioned that the European Central Bank (ECB) will closely monitor developments in the effective exchange rate, and that a too-weak euro might jeopardise price stability. 

EUR/USD recovered to 1.042 after hitting the 20-year support level at 1.035 on Friday.

However, in the big picture, the euro remains firmly in the dollar’s grip, coming dangerously close to dollar parity as the Ukrainian crisis and concerns about energy supply continue to exert negative pressure on the single currency.

Will the ECB step in?

Despite the euro’s timid rebound, there are no signs of a broad risk-on, as currency markets were hammered by new worries of a global economic slowdown, following the alarming macro data from China, with the Australian (AUD) and New Zealand dollars (NZD) leading losses among major currencies.

Retail sales in China fell 11.1% year-on-year (y/y) in April, the worst drop since March 2020 (-15.9%) and much below the expected decline of 6.1%, as Covid lockdowns considerably reduced spending activity. The Chinese unemployment rate rose to 6.1% in April, outpacing the forecasted 6%. 

China’s industrial production also unexpectedly declined by 2.9% (y/y) in April 2022, falling short of the market estimate of 0.4% rise and reversing a 5% gain in March. It was the first drop in industrial output since March 2020.

The Australian dollar (AUD/USD) fell by 0.4% on the day, hitting the 0.69 level versus the dollar. The New Zealand dollar (NZD/USD) echoed the Aussie, by slipping 0.3% today to 0.625.

The Chinese yuan (USD/CNH) further weakened in the European morning, reaching 6.80 per USD.

AUD/USD

0.65 Price
-0.460% 1D Chg, %
Long position overnight fee -0.0073%
Short position overnight fee -0.0009%
Overnight fee time 21:00 (UTC)
Spread 0.00006

GBP/USD

1.26 Price
-0.210% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00013

USD/JPY

151.38 Price
+0.050% 1D Chg, %
Long position overnight fee 0.0113%
Short position overnight fee -0.0195%
Overnight fee time 21:00 (UTC)
Spread 0.010

EUR/USD

1.08 Price
-0.280% 1D Chg, %
Long position overnight fee -0.0080%
Short position overnight fee -0.0002%
Overnight fee time 21:00 (UTC)
Spread 0.00006

Early signs of a Chinese economic slowdown were further bolstered by remarks by former Goldman CEO Lloyd Blankfein about the high risks of a US recession.

Aussie (AUD/USD) and Kiwi (NZD/USD) dollars bore the brunt of China’s lockdowns.

Australian dollar and New Zealand dollar one-month performanceAustralian dollar and New Zealand dollar one-month performance as of 16 May 2022 – Photo: Capital.com / Source: Tradingview


Meanwhile, the Turkish lira (TRY) is back under pressure, surpassing 15.50 per USD for the first time since the end of 2021.

Spiralling energy prices pushed Turkey’s inflation rate to a 20-year high of 70% last month, and speculation resumed as the government’s ‘lira-isation’ scheme loses grip in the face of lower central bank reserves and extremely negative real interest rates.

USD/TRY hits fresh year-to-date highs

The British pound continued to see selling pressure against the US dollar (GBP/USD), falling to $1.223, and it is currently exhibiting a decline of 0.4% today against the euro (EUR/GBP). 

Worries of a trade war kept GBP sentiment on a weaker foot following the UK government’s proposal that unilateral modifications to the Northern Ireland Protocol could be considered, while trade statistics showed record imports and trailing exports last week.

The pound will be waiting for April inflation data on Wednesday, which is expected to rise to 9.1% year-on-year from 7% in March. Surprising outcomes might rekindle speculation of a more aggressive Bank of England response, giving the GBP a boost.

What is your sentiment on EUR/USD?

1.07921
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GBP/USD is down nearly 10% year-to-date

Major currencies: Top risers and fallers today – 16 May 2022

A forex table that compares nine major currencies against each other, including USD, EUR, GBY, JPY, CHF, AUD, NZD, CAD and NOKMajor currencies: Today’s top risers and fallers, 16 May 2022, 10:30 UTC – Credit: Capital.com

Forex market heatmap – 16 May 2022

A forex table showing the performance of US dollar and the euro against other currenciesForex market heatmap 16 May 2022, 10:30 UTC – Credit: Capital.com

Markets in this article

AUD/USD
AUD/USD
0.64997 USD
-0.00302 -0.460%
EUR/USD
EUR/USD
1.07921 USD
-0.00299 -0.280%
GBP/USD
GBP/USD
1.26088 USD
-0.00261 -0.210%
NZD/USD
NZD/USD
0.59720 USD
-0.00331 -0.550%
USD/CNH
USD/CNH
7.25849 USD
0.00463 +0.060%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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