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Forex today: a rough ride and a reality check for dollar bulls in a spooked market

Forex today has been a day to remember for the month of May. The market was spooked by Comey's memo about Trump's interference with the federal investigations. US yields tanked by around 5% in the 10-year that traded within a range of between 2.2104%-2.3046%. 

The US dollar managed to eventually stabilise at 97.57, down -0.54% on the day, (a big move for DXY), within a range of between 97.481-98.129 on the back of a previous close of 98.105. It is currently yielding a total loss for the year now of -4.54% below the December peak of 103.29. However, DXY remains above the 52WK low of 93.019, for now. 

The political environment in the US has been Strum and Drang since Clinton and Trump went head to head last year and for the most part, the Fed has been able to stick to its hawkish stance regardless. However, markets are now proliferating the political aspects of the puzzle when it comes to the US economy's outlook. Indeed, the Fed could well start to unveil their own concerns in this respect, noting the asset bubbles that exist in the economy and the fragility of the stock markets as seen in today's action on Wall Street. On the back of today's turmoil, Fed's Kashkari announced that rate hikes to address asset bubbles should only be used as a last resort. Eyes will be on both Fed's Bullard and Mester this week.

Meanwhile, the market will remain jittery around the Trump scandal headlines, although this talk of impeachment is a process that is initiated only by a vote in the House, where Republicans hold a 45 seat majority, so it is an unlikely scenario that the House of Representatives will bring charges against the President. However, if the President was impeached, then the Senate can have a trial to determine the either the guilty or innocence outcome. It will likely be a long drawn out process that requires a huge investigation over time. Once markets realise this, we will see some stability back in the market, albeit, with risks to the downside when it comes to risk sentiment. The dollar should still find traction on the likelyhood of a June hike, (Group FedWatch's odds of June hike fell to 64.6%).

Meanwhile, USD/JPY is down 1.87% at the time of writing as the Dow takes the biggest loss since September today. Sterling is +0.36%, having approached the 1.30 handle again, shy just 9 pips off the target. The safe haven CHF was up 0.70% and EUR +0.64%, both with fresh highs for 2017. 

Commodities were mixed, with Gold stealing the show and up to critical resistance at the 1.260 level, +1.75% for the day. The Aussie (awaiting jobs today) was virtually flat +0.03% while the Kiwi was the leader of the antipodeans, lifted by strong milk prices this week, +0.86%. The Canadian dollar was closing -0.05% vs the dollar still hampered, at a guess, by a worrisome housing market and the price of oil losing its recent momentum. 

The day ahead:

There are no significant events other than Aussie jobs and Japanese GDP:

GMT
Event
Vol.
Actual
Consensus
Previous
Wednesday, May 17
23:50
 
0.4%
0.3%
23:50
 
1.7%
1.2%
23:50
 
 
-0.1%
23:50
 
 
¥426.1B
23:50
 
 
¥241.5B
Thursday, May 18
01:00
 
 
4.1%
01:30
 
 
11.3%
01:30
 
 
1,248M
01:30
 
 
-13.6K
01:30
 
5.0K
60.9K
01:30
 
 
74.5K
01:30
 
5.9%
5.9%
01:30
 
64.7%
64.8%

Key events from the US session:

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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