The Japanese yen (JPY) was the top gainer among major currencies yesterday, and it extended its gains in European morning trade on Friday, after Reuters reported that Bank of Japan (BoJ) policymakers are debating how to begin signalling an impending interest rate rise as inflation creeps closer to goal.
The US dollar continued to edge slightly lower, despite the recovery in US yields and Fed speakers sending hawkish messages. The DXY index was last seen trading at 94.75 at 11.00 GMT, down 0.1% today.
The Canadian dollar (CAD) and the Norwegian krone (NOK) rose further, fuelled by sticky-high oil prices, with Brent trading at 84.7 a barrell, up 1.7% on the day. USD/CAD broke below 1.25 hitting two-month lows.
The pound is also higher this morning, bolstered by stronger than expected UK economic data, and it is maintaining a positive tone despite the political turbulence surrounding Prime Minister Boris Johnson.
The euro consolidate prior gains at 1.145, flat on the day. High-beta currencies such as the Australian dollar (AUD) and the New Zealand dollar (NZD) were slightly lower, down 0.2% against the dollar.
Daily performance of major forex pairs – 14 January 2022
- EUR/USD held firm at 1.1458 (+0.03% on the day)
- GBP/USD rose to 1.3731 (+0.19%)
- USD/JPY weakened to 113.90 (-0.24%)
- USD/CHF remained unchanged at 0.9111 (+0.03%)
- AUD/USD edged down to 0.7270 (-0.19%)
- NZD/USD tilted down to 0.6850 (-0.15%)
- USD/CAD dropped to 1.2480 (-0.29%)
- USD/NOK slipped to 8.6811 (-0.38%)
Performance matrix of major currencies – 14 January 2022
At the time of writing, the US Dollar Index (DXY) was at 94.75, slightly down on the day (-0.1%).
Three FOMC members – Lael Brainard, Patrick Harker and Charles Evans – delivered hawkish signals yesterday in their remarks, advocating for higher rate hikes this year. Vice Chair Brainard said that rates might be increased as soon as March.
On the data front, US producer prices (PPI) rose 0.2% month-on-month (9.7% year-on-year) in December 2021, slightly below what market expected (0.4% month-on-month and 9.8% year-on-year).
Earlier this week, the consumer price index (CPI) in the US increased 7% on the year in December 2021, hitting 40-year highs. Core CPI, which excludes food and energy prices, rose by 5.5% year-on-year.
Today the focus is on December’s retail sales and University of Michigan’s consumer sentiment index for January. Consensus expects retail sales to edge down by 0.1% month-on-month in December, reflecting the spike in Covid-19 cases and the elevated inflation.
US Treasury yields pared yesterday’s fall this morning, with the 10-year yield hovering at 1.75% and the 2-year yield around 0.95%, both up by 3 basis points today.
Investors’ expections on a Fed March rate hike increased to 85% likelihood, from 75% last week, according to the CME Group FedWatch tool. The market is now pricing in slightly less than four cumulative hikes by the end of the year.
US dollar (DXY) technical levels
- 52-week high: 96.88
- 52-week low: 89.49
- 50-day moving average (1-day chart): 95.84
- 200-day moving average (1-day chart): 93.09
- 14-day Relative Strength Index (RSI) (1-day chart): 34
Chart of the day: Dollar is down against all major currencies year-to-date
EUR/USD was flat to 1.1457 by 11:00 GMT, after marginally rising 0.1% yesterday.
European Central Bank (ECB) president Christine Lagarde recently emphasised the increase in consumer prices while reiterating the ECB’s commitment to price stability and currency credibility.
On the data front, Germany’s GDP expanded by 2.7% in 2021, in line with estimates, while France’s annual inflation rate held at 2.8% year-on-year in December of 2021, unchanged from November's 13-year high.
EUR/USD technical levels
- 52-week high: 1.2345
- 52-week low: 1.1184
- 50-day moving average (1-day chart): 1.1335
- 200-day moving average (1-day chart): 1.1733
- 14-day Relative Strength Index (RSI) (1-day chart): 62
The pound gained further traction this morning after the release of stronger-than-expected economic activity data in the UK.
Industrial production rose by 1% month-on-month in November 2021, from a 0.5% fall in October and beating market forecasts of a 0.2% gain.
The gross domestic product (GDP) grew by 1.1% in the three months to November 2021, beating market expectations of a 0.8% expansion due to a strong performance of the services sector.
Domestically, Prime Minister Boris Johnson is under increased scrutiny after allegations that his employees had a party in Downing Street during the coronavirus outbreak when the nation was under lockdown.
Boris Johnson apologised earlier this week in front of Parliament, but there have been many calls for him to resign, even from within his own Conservative Party.
On the Brexit front, Liz Truss, the British foreign minister, tweeted on Friday that she had had good talks with European Commission Vice-President Maros Sefcovic about how to deal with post-Brexit trade issues. Sefcovic and Truss will meet next week for “intensified” talks.
Gilt yields are higher by 3 basis points across the curve this morning, with the two-year hitting 0.80% and the 10-year yield hovering at 1.14%. The market is now fully pricing in a Bank of England’s rate hike in February, according to CME Group’s Bank of England Watch tool.
GBP/USD technical levels
- 52-week high: 1.4248
- 52-week low: 1.3165
- 50-day moving average (1-day chart): 1.3400
- 200-day moving average (1-day chart): 1.3735
- 14-day Relative Strength Index (RSI) (1-day chart): 73
Forex Performance Heatmap – 14 January 2022
Daily performance of EM currencies
- USD/MXN -0.14%
- USD/ZAR -0.50%
- USD/TRY -0.14%
- USD/RUB -0.14%
- USD/KRW +0.15%
- USD/CNH -0.12%
- EUR/PLN -0.13%
- EUR/HUF -0.04%
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