USD trying to push higher, but yields stuck in a range

EUR supported ahead of 1.0500, JPY pre 114.00. GBP bids ahead of 1.2400.

We saw the USD pushing higher in the early part of the day, and against its lead counterparts, made some decent progress, but these look to be limited given the notable order levels seen last week. Standout is EUR/USD, where despite the nervousness over Le Pen’s gains in the French election polls, we cannot break 1.0500 on the downside. 1.0521 proved the base for the return towards 1.0700, but having turned back on this level since, the move has once again stalled at these lows. From a data perspective, EUR buyers will point to the better than expected Feb German PMIs, with the French services component also beating expectations to see the EU composites also up on consensus.

USD/JPY also looks to have a clear path on the upside, with the BoJ’s Kuroda reasserting the accommodative stance in order to achieve their inflation target. Unless we see UST yields pushing higher though, gains will continue to flounder ahead of 115.00, but as yet, we struggle to get close to 114.00.

For Sterling, the data is starting to turn, though the PSNB contracted more than expected with the change in metrics suggesting even better numbers for the Treasury to contend with. That said, the inflationary impact on disposable income is a concern, and has been dampening recent talk of rate hike later this year, with earnings growth receding a little alongside softer consumer data. However, political drivers have been dominating for the large part, and we get a sense that the triggering of Article 50 is priced in. This would explain the Cable demand coming in well ahead of 1.2350, with pre 1.2400 the now first sticking point. EUR/GBP has also been on the heavier side, and through 0.8450 we could see a retest of the mid 0.8300’s.

The Fonterra dairy auctions saw the index falling a little over 3%, but much of this was priced into the futures market – hence the modest reaction from NZD. However, AUD remains the out-performer near term, with a more relaxed RBA (on exchange rates) helping maintain the proxy commodity/risk trade. The RBA minutes underlined the cautiously optimistic tone on global growth prospects. The CAD is also looking a little more resilient, but also at some key levels. Pre 1.3200 looks offered near term, but this developed in conjunction with a fresh move higher in Oil prices, but WTI still comfortably south of USD55.00.