- Geopolitics and trade wars keep risk appetite at bay and supporting risk-off flows.
- The Dollar drifting lower with the DXY moving from the high 96s down to a low of 96.60.
Forex overnight was risk-off following the market's taking the ceasefire as little to get too hopeful about and as a result, US yields dropped, weighing on USD/JPY. The Dollar was creeping lower, with the DXY moving from the high 96s down to a low of 96.60.
There wasn't any data in the U.S. session but a focus on overnight events which included the EU leaders nomination of IMF head Christine Lagarde to head the ECB, replacing Mario Draghi on 31 October. Prior to that, we had BoE governor Carney speaking who addressed the burning concerns over global trade and how UK growth was indeed at risk to such events, saying that "a global trade war and a No Deal Brexit remain growing possibilities. Also, a key survey of construction sector conditions undershot market forecasts. Mark Carney laid out expectations of a "considerably weaker" H2 and potential for a "near term policy response as insurance to maintain the expansion."
As for price action in bonds, yields in both the Eurozone and the US dropped. In the US, the 2-year treasury yields fell between 1.75% and 1.80% and while 10's slid from 2.02% to 1.97% on dovish central bank comments from Fed, and BoE officials. Markets price 31bp of easing at the July meeting, with a total of four cuts priced by mid-2020.
Currency price action
The analysts at Westpac explained the price action in a summary as follows:
- Elsewhere, EUR/USD ranged sideways between 1.1285 and 1.1320, holding up as yields in both the Eurozone and the US fell.
- GBP underperformed, sliding from 1.2640 to below 1.2600.
- USD/JPY fell from 108.40 to 107.80, aligning with the fall in US yields.
- AUD/USD extended its positive reaction to yesterday’s RBA cut, reaching 0.7000 before steadying just below the figure, up 0.4% on the day.
Key notes from Wall Street:
Key events ahead:
Aussie trade is slated for the session. The analysts at Westpac said, "Australia’s trade position swung from deficit end-2017 to growing surpluses through 2018 and a record high A$5.0bn in Feb 2019. A surge in the value of resources exports has been the main driver, but non-resource exports are also growing while imports are being constrained by sluggish consumer spending and the weak AUD. We look for another record high surplus in May, A$5.4bn, with exports +1.8% and imports +0.6%."
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