Biggest drop since March 2020

Six days ago, USD bears were hurting badly. At the close of that day, I warned against excessive USD-optimism based on a few factors (just read the first sentence here). Today, DXY sustains its biggest weekly drop since March 2020. The Bank of England made the predictable decision to raise rates by 25 bps, but 4 of the 9-member Committee made the unpredictable decision to vote for 50-bps (Mann, Haskel, Ramsden and Saunders). The idea of 50-bps must NOT have been a total surprise if you read this.  The ECB followed 45 mins later, fuelling expectations of a rate hike this year as well as a ending bond-buying possibly in H2. Lagarde had no other choice but to dwell on surging inflation as the EU grapples with cost of living crisis. I did warn against excessive dovish expectations from Lagarde on here last night. The chart below resurrects the relationship between German-US 10 yr yield spread and EURUSD, highlighted by a 60-day correlation of 0.37, but growing from a low of zero just 2 mths ago. The high was 0.60 as recently as last summer. 

Moving on, EURUSD is on its way to regain 1.17 this month, when it successfully closes above 1.1440s this week, which coincides with the May trendline resistance, the 100-DMA and the summer channel top in the Bund-Treasury spread. 

All of the above is considered "cheap talk" when you read it after-the-fact. Yet, we've reiterated to our WhatsApp Broadcast Group to stay long GBPUSD since Friday, with the right shoulder support at 1.3350, paving the way for 1.37 into BoE week. And that's where we're heading.

Yes, we have NFP and all that noise tomorrow. We could see a very ugly number (near -20K instead of +150K) due to Omicron absenteeism, but that should have a limited USD impact.