USD in limbo ahead of Healthcare vote

Daily FX Wrap: USD in limbo ahead of Healthcare vote. UST yields near key lows. Another good day for GBP, but resistance clear to see pre Article 50.

Looking past the vote on Obama-care tonight, USD markets will be looking to some hard economic data directive Friday, in the form of March manufacturing and services PMIs following on from the Durable goods numbers for Feb. Even though the odds for 2 (more) or more rate hikes from the Fed this year have fallen, we still look for US Treasury yields to base out ahead of the recent (channel) lows, but this may be challenged by investor confidence should the Trump administration fail to attain the votes required. Against this, we cannot rule out continued resilience in the equity markets, which have wrong footed the markets on numerous occasions in recent years!

USD/JPY may well test lower towards 110.00 on any or a combination of the above, but technically, the breach of 111.35-50 suggests this. JPY gains across the board highlight the impact of investor sentiment, but with Japanese year end next Friday, repatriation flow also has to be factored in.

It was another good day for GBP as the higher inflation levels do not seem to have worked through into diminished consumer spending. UK retail sales for Feb rose a much higher than expected 1.4%, exceeding consensus by a full percentage point. However, the ONS pointed to the rolling 3 month moving average showing a less impressive figure, while economists also argue for the delayed impact on the inflationary pass-through. Cable has been pushed back into the 1.2500’s, while EUR/GBP pressed down towards 0.8600, but resistance is starting to tell, with next week’s triggering of Article 50 likely to prompt hesitation at these levels.

EUR resistance against the USD has duly materialised through 1.0800, but shallow pull-backs suggest the market is ready to test higher levels amid the backdrop of a (modest) shift in ECB policy stance, since ‘magnified’ by comments from certain members of the governing council alluding to movement on rates (currently -0.40%). Easing tensions over the French elections, partly on the polls and partly the Dutch outcome, but we look for nervousness to re-emerge nearer the time. EU PMIs due out tomorrow morning, but have has limited impact of late.

Data releases in both NZ and Canada could see some increased activity in both the NZD and CAD, though the NZ trade stats due out early on in the Asian session will need to be some way off expectations to impact in the immediate aftermath of the RBNZ meeting this week. Canadian inflation stats will prove a little more interesting in light of the strong Q4 growth numbers and strong Feb payrolls. USD/CAD currently holding in the middle of the 1.2950- 1.3550 range which has held since the start of the year. AUD support seen ahead of 0.7600 vs the USD near term, sub 1.0800 vs NZD. No Australian data on the schedule.