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4 Global Market Updates- 28 September, 2022

In this article, we have covered the highlights of global market news about the NZD/USD, GBP/USD, USD/TRY and EUR/JPY.

NZD/USD suffers below the 0.5600 level, its lowest level since March 2020, due to a stronger US dollar.

  • Several variables cause the NZD/USD to fall below its two-year low.
  • The US dollar is supported by aggressive Fed rate hike predictions and an increase in US bond rates.
  • Another factor in pulling flows away from the risk-sensitive Kiwi is the risk-off attitude.

In the first part of trading on Wednesday, the NZD/USD pair plummets to its lowest level since March 2020; however, it manages to bounce back a few points in the early European session. The US dollar price is still in control of the pair, which is now trading just below the 0.5600 level and is down about 2% for the day.

Indeed, with anticipation of a more aggressive Fed policy tightening, the USD Index, which gauges the dollar’s performance against a basket of currencies, reached a new two-decade high. The overnight comments from Fed members were hawkish, which supported the bets and allowed the yield on the standard 10-year US government bond to stand tall around its highest level since April 2020.

Aside from that, the pervasive risk-off mindset gives the safe-haven greenback an extra lift and helps divert flows away from the risk-sensitive Kiwi. Investors are nonetheless concerned that a further decline in borrowing rates may result in a worldwide economic slump. Additionally, the possibility of a further escalation in the Russia-Ukraine war weighs on the perception of risk worldwide.

The virtual environment implies that the downside is where the NZD/USD pair will encounter the least resistance. On short-term charts, the RSI (14) is so oversold that it prevents bearish traders from setting up for an extension of the depreciating trend. This, in turn, seems to be the sole element supporting spot prices in some way, at least for the time being.

Currently, the market is anticipating the publication of the US Pending Home Sales data, scheduled for later during the early North American session. In addition, the dynamics of the USD price will be affected by the remarks of significant FOMC members, such as Fed Chair Jerome Powell, and by US bond rates. Trading opportunities around the NZD/USD pair should be available due to this and the general risk attitude.

GBP/USD recovers from a low but remains severely adverse due to concern about UK’s economic intentions.

  • The GBP/USD currency pair saw an intraday reversal and is now about 300 pip lower than its daily high.
  • The response to the BoE’s announcement that it would purchase government bonds rapidly fades away.
  • As a recession approaches, the sterling is hampered by worries about the growing UK public debt.
  • The aggressive Fed rate rise bets and the risk-off atmosphere strengthens the USD and aid in the decline.

Before Wednesday’s North American session, the GBP/USD pair fell about 300 pip from its daily high and below mid-1.0500s, but there was no more movement. Currently trading just below the 1.0600 round-figure level, the pair is still down more than 1.25% for the day.

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The Bank of England’s announcement that it would begin purchasing long-dated UK government bonds to restore orderly market conditions did result in a slight increase in the value of the British pound (GBP). The 30-year benchmark gilt yield decreased by more than 50 bps at one point due to the UK central bank’s action, which seemed to soothe the market. The GBP/USD pair’s rapid intraday recovery from the 1.0840 zone illustrates how fast the initial market response fades.

The record tax cuts totaling £45 billion proposed by the incoming UK administration and initiatives to subsidize energy costs may push the country’s finances to the breaking point. Investors seem less optimistic about the government’s capacity to control the growing debt. The fiscal package also risks undermining the BoE’s attempts to rein in sky-high inflation and generate new economic challenges. As a result, sterling is hampered, and the upward potential for the GBP/USD pair is limited.

On the other side, the US dollar reached a new two-decade high and continues to benefit from an increased agreement that the Fed will raise interest rates more quickly to control inflation. The overnight hawkish comments made by FOMC members confirmed the wagers. In addition, the current risk-off atmosphere, which is characterized by concerns of a deeper global economic slowdown, gives the safe-haven dollar an extra boost and is a factor in the substantial intraday decline of the GBP/USD pair.

Nevertheless, a little decline in US Treasury bond rates is deterring USD bulls from making new wagers and providing some support for the GBP/USD pair. However, the underlying environment shows that the fall is the direction of the least resistance for spot prices. Further rise above the level of 1.0840, which has recently seemed to act as an immediate strong barrier, will cancel out the bearish prognosis for the near term and result in an aggressive short-covering move.

For the time being, USD/TRY will grow steadily and surpass 19 Credit Suisse.

The Turkish central bank shocked the markets on Thursday, September 22, by announcing a second straight 100 bps reduction in its policy rate. As the central bank prefers a smooth FX path, Credit Suisse analysts continue to hold the position that the lira would depreciate gradually going forward.

Priority one is a smooth road for USD/TRY.
“The pair’s continued, somewhat orderly ascent remains our basic scenario for USD/TRY,” the statement reads.

In the first part of the fourth quarter, “we anticipate a break over the 19.00 level to occur.”

“As lira stability remains a top concern, we anticipate that the central bank would utilise the most recent rise in its gross reserves to satisfy the upcoming balance of payments financing requirements.”

If necessary, other ad hoc measures, like a new deposit program that incentivizes people to hold their money in lira, would likely be utilized to design a smooth depreciation path.

EUR/JPY Price Analysis: 137.36 is the next price to the downside.

  • The EUR/JPY continues the drop from Tuesday and retests the 138.00 regions.
  • The September low at 137.30 may be challenged if there is further fall.
  • On Wednesday, the EUR/JPY extended the weekly corrective decline to 138.00.

Given the current market action, more weakening should not be ruled out, especially given the likelihood of further euro weakness and the threat of further FX intervention by the BoJ/MoF.

In contrast, a break of the September low at 137.36 (September 26) may reopen the possibility of a short-term visit to the 200-day SMA at 135.71.

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Please click here for the Market News Updates from 27 September, 2022.

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