Forex today: all eyes on US CPI

As we enter the Fed blackout period, forex today was mostly awaiting the US CPI and retails sales data to follow in upcoming sessions, but the dollar was mixed with lower yields across the board despite the recent attention to the LIBOR/OIS spread. 

The US three and ten-year treasury auction was coming in line with the market. The US 10yr treasury yield dropped from 2.90% to below 2.87% with US equities slowing up. The Fed fund futures were still pricing three more hikes by end-2018 and another hike in 2019. The higher beats rolled over while the commodities dipped due to oil off about 1.4%.  Gold dropped 0.2% to close at $1321/oz.

The single currency was opening in the NY session around 1.2310 after the dollar firmed in the European shift where bears capped the bid at 1.2340. The bear pressure continued and the euro was sent packing down to below the 1.23 handle to 1.2294 the low. However, the yen crosses were back in play and EUR/JPY's rally lifted EUR/USD to 1.2345 and for a close of 1.2334 while markets get set for Tuesday's CPI data.

GBP/USD ran into headwinds at 1.3907 on dollar strength in London and opened NY around the figure for a further gain to 1.3917 before a 1.3904 close. Eyes will be on Brexit headlines again throughout the month while we await the meeting between officials towards the end of the month on the 22/23rd March. However, the pound can find support on rate hike expectations from the BoE.

EUR/GBP was caught between dollar flows and entered NY after making a low of 0.8849. The cross traded between a range of 0.8885-0.885 and ended the session -0.13%. In London, traders heard that a "No deal" Brexit could cost the UK, EU companies 58 bln pounds while UK's Hammond sees the light at end of austerity tunnel, warning that debt levels must fall.

USD/JPY noise stuck with the Moritomo scandal, (imparting Japanese stocks),  while focus stayed with N.Korea and trade wars while US yields recovered post-NFP negativity in the wages report. USD/JPY was stuck in a 106.35/73 range and struggled around the 21-D SMA at 106.75, piercing the descending resistance of the steep channel from 113.38 Jan 2018 highs while traders await US CPI and retail sales this week.

As for the antipodeans, the Kiwi hit a low of 0.7285 before a bid into the close, bringing the price up to a more respectable 0.7290 level for the handover in early Asia. AUD/USD opened near 0.7860 in the consolidation of the European recovery rally that made a high of 0.7874 before moving up to 0.7879.

Key notes from the US session:

DXY underwater on nonfarm payrolls, but, watch the Libor/ OIS spread

Key events coming up:

Analysts at Westpac explained the days key events in a snapshot as follows: "Australia’s data calendar features Jan housing finance approvals and Feb business confidence from NAB (11:30am Syd/8:30am Sing/HK). We look for -1% m/m on total home loan approvals, though January is heavily affected by summer holidays so we wouldn’t draw strong conclusions from the data.

The RBA last week noted strong business confidence supporting its optimism over non-mining business investment. The NAB business conditions index was 19 in Jan, compared to a 25 year average of 5.4, while the confidence index was 12, versus a 5.9 average in the same time.

US Feb CPI is the key US data release. The consensus is 0.2 m/m, for annual rates of 2.2% overall and 1.8% excluding food and energy. Bear in mind that the Fed views this measure as overstating inflation, so focuses on the PCE deflator which remains clearly short of the 2% target."