Forex today: calmer, dollar/rates down, rethinking the Trump trade again

Forex today was calmer on Monday in both the European and US sessions with markets less concerned over Syria and instead preferred to concentrate on macroeconomic and Central Bank outlooks. On Wall Street, the focus was on corporate earnings. 

There s some early concern in rhetoric from Russia when  Putin predicted global 'chaos' if West hits Syria again, but the consensus is that the stikes were indeed a targetted one-off strike and mission accomplished, so markets move on.

In the US session, US March retail sales printed better than expected although were offset by the miss in the Empire States Fed survey. The dollar was lower on the day as markets took profits out of the safe haven trades and concentrated on the inflation outlook where the curve is flatter and putting the reflation trade into question. 

DXY was trading between 89.389 - 89.850, -0.41% on the day for the close. The US 10yr treasury yield initially rose to 2.86% - a one-month high – but dropped in NY to 2.83%. The 2yr yields continued in their multi-year uptrend to 2.39% and to the highest since 2008. The Fed fund futures yields are pricing in the next rate hike in June around an 85% chance.

As for other currencies, the single currency climbed 0.4% to 1.2380 after entering the NY session at 1.2365 following the European morning's spike. It was a bit of a chop in NY where the euro dropped to 1.2360 before reversing again and moving higher on dollar weakness to 1.2380 for the close. Markets will now look towards German ZEW with the US key retail sales out of the way. 

The pound was the best performer against the greenback and was up by +0.7% on the day to 1.4340, (cable was rising from1.4238 to 1.4313 during the European am. NY range 1.4339-1.4298). The markets are expecting the BoE to hike rates in May which is supporting the demand flows for the pound - BoE meets on May 10th and the probability of  25bp hike is at 74% currently. 

As for the cross, eyes will be on Brexit negotiations that have resumed this week which may temper gains in the pound while cable trades below the 1.4346 2018 high resistance level. However, central focus remains on Central Banks and ECB's Praet was crossing the wires saying, "we must be patient, persistent & prudent w/our policy".  EUR/GBP ended the NY session 0.8643 down 0-.18%, within a Monday range of between 0.8669-0.8627.

The yen was performing on the bid in NY, repeating the price action seen in overnight trade before catching a bid in London. The flows were dollar related but the yen was soft on the relief in markets over Syria angst. Eyes will turn to Abe's and Trump's meeting on Tuesday but the forex is mostly tracking stocks and risk in relation to the yen and its safe haven status. 107.39 was the early high with 107.03 the low. USD/JPY closed at 107.11.

As for the Aussie, it was range bound sideways until a little spike trough 0.7780 making for a small gain on the day. Eyes are on the RBA minutes, China March IO and retail sales for the Asia session.

Key notes

  • Wall Street stocks push higher and shrug-off Syria airstrike, focus on earnings, stellar Bank of America
  • Fundamental wrap: markets reverse risk-off Friday

Key events ahead: 

Analysts at Westpac noted the key events ahead from Asia today as follows:

"The minutes from the RBA Board’s April meeting are due at 11:30amSyd/9:30am Sing/HK. Markets price negligible risk of a cash rate increase until November but there will still be some interest in the commentary on e.g. the growth outlook."

"China Q1 GDP is the regional data highlight (12pm Syd/10am local), though the market response is usually very muted, due to the lack of volatility in the headline y/y growth number. Indeed, the outcome has been either in line or only 0.1ppt from the Bloomberg median forecast every quarter since Q3 2015. Monthly industrial production, retail sales and fixed asset investment data will be released at the same time, with IP especially worth watching (it was 6.2%yr in Feb)."

 

 

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