Forex today: Central Bank divergence supports focus for 90.00 DXY

Forex today was consolidating the dollar's attempts to reclaim the 90 handle on Central Bank divergences once again, with the DXY making a high of 90.05 but unable to hold onto the territory despite US yields picking up as the session went by. 

Markets are looking ahead to tomorrow's crowded calendar in the US. The main focus will be with Fed chairman Powell's testimony before the House Financial Services Committee starting from the 10 am local time where the lengthy Q&A session could be an additional catalyst as the House members probe the new Fed chief on his views on a wide range of topics. For the prepared text of his opening remarks that will be released 90 minutes earlier, traders will be looking for any clues as to whether the Fed is about to ramp up the pace of tightening, in line with the market's expectations with the US 10yrs approaching the 3.00% psychological level. Analysts at Westpac argued that markets are expecting Powell to indicate the tightening path will remain gradual - and at least that is what the stock markets are telling us at the moment, with concerns over inflationary pressures and a faster pace of tightening by the Fed as perhaps a little overblown.

For today, the 10yr treasury yields were extended Friday’s decline to 2.83%, before picking back up to 2.8733%. In respect of the Fed fund futures yields, these continued to price a 90% chance of another rate hike in March with a total of four hikes priced by end-2019.  

Elsewhere, eyes were across the pond with the ECB's gov. Draghi speaking before the European Parliament and sticking to his cautious script, saying that inflation had yet to show a sustained uptrend.The dollar can likely continue higher this week on the basis that the euro and yen will trade heavy with their central banks pushing back on expectations of policy changes.

US data:

• Dallas FED manufacturing business index Feb: 37.2 (est 30; prev 33.4)
• US New Home Sales Jan: 593k (est 648k; prev r 643k)
• New Home Sales (m/m) Jan: -7.8% (est 3.6%; prev r -7.6%)

As for the rest of the currencies, the single currency made a roundtrip from 1.2300/10 to 1.2355 and back after stalling by 10 & 21-DSMA the European's AM, passed over to NY traders at the range's high

It was pretty choppy out there and the pair was catching a bid on the back of Wall Street's rally and the yen giving some ground back to the euro liting EUR/USD near 1.2315 before settling back for a close at around 1.2305 late in the day. 

GBP/USD was making a 10-day high at 1.4070 following the weekend's news and shift on former dovish BoE's Ramsen. The market is pricing in a 70% chance of a May hike supporting a bid in the pound. There was a hefty option exp by 1.4000 which anchored cable into the option cut, with a  1.40 strike. The rest was political where the pound was able to find some support from Labour's support for the UK to stay in EU customs union.  EUR/GBP ended the North American session at 0.8813, driven by flows in yen and the euro within a range of between 0.8772-0.8822. 

USD/JPY bulls were in charge in the European and US markets on the back of Kuroda's dovish stance. The US stocks were also aiding the decline in the yen that was found trading on the 107 handle in the dollar cross by the close of play with a number of probes there throughout the US session. As for the Antipodeans, AUD/USD  climbed to 0.7893, dropping back to the low of 0.7826 ending flat for the session at 0.7850 after opening the NY session at 0.7875 on yen weakness, lifted by AUD/JPY.  

Key events ahead:

Analysts at Westpac explained that Australia’s calendar is quiet and the Bank of Korea retains a tightening bias but seems to be in no hurry to follow up November’s hike to 1.5% so a steady hand is expected today.

Key notes:

Funda and political wrap for US session: Draghi's usual cautious script weighed on EUR/USD