Forex today: volatility and yields driving proace action, DJIA off a cliff
|In forex today, once again, volatility was the foundation to uncertainty with stocks rolling over and higher US yields at play.
US ten years traded between a range of 2.8059% - 2.8821% and only dropped again at the close of play from the 2.86's% to 2.82's%. The DXY traded between 90.013 - 90.567 with a pick up from early trade to rise throughout the day, albeit at a slower pace than previous sessions. The DJIA dropped closing down 1033 points and ended much lower at 23,860.12 within a 3000 points' range.
As for events, we had the US Initial Jobless Claims come in at 221k vs 232k expectations and vs the 230k previous. Continued Jobless Claims arrived at 1.923M, vs 1.945M forecasts and 1.953M prev, with being revised to 1.956. From the Central Banks, the BoE was on hold but signalled a clear summer hike with very obvious forward guidance dependent on Brexit, while for Fed speakers, we had Fed's Dudley signalling support for a March rate hike should the U.S. economy stay the course. Kaplan, and along the same lines, said that the Fed is likely to continue raising rates. ECB’s Praet was also crossing the wires and sounding forever hawkish again.
Politically, we had the U.S. Congress announcing that there will be a vote on a long-term budget deal so to avert a shutdown while Trump's administration announced that they may start to target immigrants who use food aid and various other benefits. On the day that the BoE made their Brexit depending MP announcements, Japan warned on Brexit and said that they cannot continue in the UK without profit.
As for other currencies, the single currency got a lift on the back of Bund yields finding new higher territory playing catch up with that of the US's steepening curve. The price action was volatile along with the rest of the financial markets and opened near to 1.2250 in NY with early fading to 1.2210 on a hardened dollar and rally in yields before a sell-off in the greenback and bids in 'quality'. The EUR/USD rallied to 1.2295 before the cross dropped as the yen picked up a bid again with the stock falling over. A low of 1.2230 was neared, before closing again higher around 1.2270.
Sterling was a sharp bid on the back of the BoE's forward guidance signalling a rate rise will come before November's meeting - so perhaps that meant by May? - (UK rates outlook boosted odds of May hike 66%, June 78% (BOEWATCH)). However, the price action was also volatile with profits taken up due to ongoing concerns over Brexit and the performance of the economy and rate rises dependent on progression there. Sterling was trading within a range of between 1.4067-1.3874 and ending NY at ending 1.3915, +0.1%.
The cross ended NY 0.8810 down 0.34%, with a stronger sterling and rate path forecasted to weigh on steady EZ outlook. EUR/GBP dropped below 0.8820 support on the BoE announcements but the 185 pip rally in cable was tempered by the Brexit concerns.
When Carney and the MPC signalled that the BoE will be hiking rates in the summer, the cross fell hard to aforementioned lows. The post-meeting statement, that, "...policy would need to be tightened somewhat earlier and to a somewhat greater extent" than anticipated in November put the nail in the coffin for the bulls. A Brexit concern correction in the cross moved the price back to the 100 4hr SMA.
USD/JPY was subject to action in equities with USD/JPY hit on a sharp fall in the crosses with eyes on the 108.28 trend low.
As for the antipodeans, the higher beta market was weaker on the dollar strength and the volatility weighs on risk appetite. The CRB was lower for the fifth day in a row. AUD/USD was pulling back from the 0.7810 level and faded into 0.7790 early, losses fade
Before bouncing on dollar weakness later in the shift and scoring around 0.7830 with some too and fro based on vol and AUD/JPY ending the day back around 0.7780 as markets await the Aussie December housing finance, RBA's SOMP data and Chinese Jan inflation.
Key events in Asia:
The RBA’s Statement on Monetary Policy and China’s PPI.
Key events in US:
Wall Street's rout continues, Dow sheds over 1,000 points
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