Forexlive Asia-pacific FX news wrap: Dollar moves higher but gives up some of it’s gains

The USD moved higher in the early Asian session as the markets continued the bullish dollar reaction to the Fed Powell’s increasingly hawkish tone that sent US yields sharply higher yesterday.

Fed Powell said yesterday that inflation is much too high, and that the Fed would look to take a more aggressive action against inflation as it jeopardized the recovery. He said that the rate increases going forward could be even higher than the quarter percentage point move approved at the meeting last Wednesday, and 50 basis point hikes could also be at multiple meetings to ensure the return to price stability.

Goldman Sachs is subsequently out with a new report saying that they now see the Fed hiking by 50 points at the May and June meeting, and would hike four more times in the 2H of the year by 25 basis points. The 200 basis point move, added to the 25 basis points from the meeting last week, would take the Fed funds target to what many considere to be the neutral rate. Fed’s Powell also commented today that if the Fed needs to tighten beyond the neutral rate into a more restrictive stance, they will do that as well.

Goldman also expects the Fed to start to start the runoff of their $9 trillion balance sheet starting May.

In the forex market, there were some significant technical moves in the US dollar favor:

• The EURUSD was finally able to crack below its 200 hour moving average at 1.1008 (the last three tests held support against the MA level), and moved down to a low of 1.0980 on the break before bouncing back higher. The move back to the upside, however, has been able to stay below the 200 hour moving average keeping the bearish bias intact.
• The USDJPY is trading to a new six year high and in the process has also breached the 120.00 level. The pair is currently trading at 120.13 near it’s highs for the day. The BOJ’s Kuroda threw gasoline on the bullish USDJPY trend move higher, by saying it is premature to speak of the Bank of Japan leaving its easy policy. The USDJPY is up 11 of the last 12 trading days. The JPY is also the weakest of the majors to start the trading day
• The GBPUSD is also lower and is testing the 100 hour MA at 1.31420. A move below that MA would be the first break since March 16. The high price yesterday stalled right near the high from last week at 1.32108 before Powell sent the pair lower into the close. The next downside target for the GBPUSD would now be the 200 hour MA at 1.31067.
• The USDCHF is trading at session highs and in the process moved back above the 200 hour MA at 0.93519 and is testing its 100 hour MA at 0.93637.

The greenback moved higher initially vs the CAD, AUD and NZD, but has since given up gains vs those currencies. The NZDUSD tested its rising 100 hour MA on the dip (MA currently at 0.6863), but found buyers against that MA and is trading modestly higher on the day.

The USDCAD, which fell below – and closed below – it’s 200 hour MA yesterday (at 1.2608), was able to push further away from that MA to 1.2569. It would take a move back above the 200 day MA at 1.2608, to tilt the technical bias back in the favor of the buyers.

In other markets:

• Spot gold is trading near unchanged at $1935.68
• Bitcoin has now moved back above its 100 day moving average of $42,238.50. It currently trades at $43,112.63.
• Nikkei 225 is trading up by 0.65%
• Shanghai composite index is up 0.14%
• Hang Seng composite index is up 1.13%