FX Daily Strategy: Asia, April 22nd

The stormy weather inflation wise is now very evident, most notably in UK fuel prices surging. Thus after a stable 3.0% (a 10-mth low) February’s headline – matching both consensus and BoE projections we see it jumping to 3.5% in March.  Services, however, may stay at 4.3% which was a four-year low (Figure) but the core could edge back up a notch due to higher non-energy good inflation (Figure).  The markedly and relatively greater surge in diesel relative to unleaded fuel warrants a hardly surprising upgrade to the price outlook for the rest of the year.  On the basis of our baseline 4-8 week war thinking, we see the headline CPI falling back for in April before moving back higher in May in Q4 but then dropping back to end the year to 2027 at just over 2.5% but with the 2027 picture little changed, not least as tightening financial condition bite. 

Geopolitical uncertainty continues to benefit the USD in a short run. Haven demand for the USD remain strong as the back and forth negotiation kept market participants on their toes, restraining their to turn cash into risk asset. 

On the chart, the anticipated break below 98.00 has bounced smartly from above support at 97.50, as intraday studies turn higher, with prices currently trading around 98.30. Oversold daily stochastics are edging higher and the bearish daily Tension Indicator is flattening, suggesting room for a test of congestion resistance at 98.50. A break will open up stronger resistance at further congestion around 99.00 and the 99.18 high of 8 April. But negative weekly charts should prompt renewed selling interest towards here. Meanwhile, a close back below congestion support at 98.00, not yet seen, will add weight to sentiment and extend late-March losses back towards 97.50.

On the chart, there is little change as prices extend cautious trade just beneath congestion resistance at 159.00. Oversold daily stochastics and the bearish daily Tension Indicator are flattening, suggesting room for a retest above here. But mixed/negative weekly charts should limit initial scope in renewed consolidation beneath 160.00. Meanwhile, support is at congestion around 158.00 and extends to 157.50. A close beneath here, if seen, will add weight to sentiment and extend late-March losses below the 157.35 Fibonacci retracement towards congestion around 157.00.