Tight trade through the day, but mixed flow in the USD to suggest more cross rate activity

Month-end flow lifts EUR/GBP. Scottish referendum talk muddies the Brexit waters again. USD/JPY still hovering ominously above 112.00.

GBP has been the focus for the day, with renewed talk of another Scottish independence referendum being considered. Added complexities to the Brexit process will naturally dampen GBP sentiment, but with real money flow also favoring near-term shorts, Cable looks relatively well supported below 1.2400. EUR/GBP has been pushed above 0.8500 again, with some support coming through French election candidate Macron’s modest gains in the polls, but progress towards the mid 0.8500’s now struggling.

Not that his is hampering progress in EUR/USD today, moving in conjunction with USD/JPY lower. This is largely down to fresh jitters in the equity markets which are impacting negatively on the carry trade(s) – of which EUR/USD is now a part. Extended levels are part of the reason, but with the Trump administration ‘stalling’ on their fiscal spending plans, the reflation trade is naturally at risk. Border adjustment tax looks to have been pushed down the pecking order, but interest in his speech tomorrow was focusing on income tax and corporate tax cuts, though this may have been tempered as officials stated that these will not be covered in his first budget address. Note we saw limited movement – if any – in US Treasury yields. US Q4 GDP (2nd reading) out tomorrow.

Not that this seems to be impacting in any negative way on the commodity currencies, but in the case of AUD and NZD, yield seekers continue to buy dips, and especially so in this current USD ambivalence. AUD traders will have the Q4 GDP stats to look to later in the week, and after the strong corporate profits reported overnight, the skew has tilted to the upside despite the latest dip in base metals. Coming up in the overnight session are the Jan trade numbers in NZ, but the market feels comfortable in keeping the NZD spot rate close to 0.7200 into the release.

Apathy in the FX markets is best reflected in the USD/CAD, which remains well contained inside 1.3000-1.3200 levels – with attempted breakouts on both sides fizzling out swiftly. Inflation data in Canada beat expectations last week, and Oil prices remain close to better levels, but the USD perspective continues to prove the ultimate driver here.

Swiss sight deposits show notable rise on the week, with EUR/CHF base ahead of 1.0600 suggesting intervention here of late.