The week has started out with the dollar on the back foot, trying not to go down without a fight though. The markets have continued to react to the failed healthcare bill on Friday that had the dollar, interest rates and stocks all in decline. However, there was some resilience on Wall Street today and the bench mark S&P 500 and Dow recovered to close the opening bearish gap on comments from some Republicans that are suggesting a more accommodative attitude towards the looming tax reforms.
In respect of yields, the 10yr treasury yields dropped to 2.35% before traders moved into stocks on high hopes for tax reforms taking yields higher to 2.38% in the 10-yreas. However, dovish comments from Evan's slowed down the hype on Wall Street and markets are now only pricing a 55% chance of a rate hike in June, down from 60% last week according to the Fed fund futures yields.
While the dollar was robust, it only managed to pare some of its losses and ended the day down 0.4%. The yen has been an impressive unit of late having met highs not seen since November 2016. However, the yen gave back some ground from the110.10 region to current spot 50 pips higher. The euro traded in a much tighter range at the top of the bullish trend between 1.0905 and 1.0860 having rallied from the 1.0790 and opening bullish gap. The antipodeans were range bound with the Aussie trading between 0.7608 and 0.7648 and the Kiwi between 0.7018 and 0.7068.
Day ahead
Analysts at Westpac pulled out the key events ahead for Asia and a busy schedule for Fed speakers:
"Australia: RBA’s Debelle gives a speech on the global FX code of conduct in Sydney. This is likely to mirror the speech he gave on the same topic in Singapore last week.
US: Fedspeak is busy - Chair Yellen speaks on workforce development in low-income communities, Kaplan speaks on the economy and policy as well as participating in a Q&A at a different event, and George speaks on banking and the economy. Jan’s S&P Case-Shiller home price index is out. The index has trended up to a 30 month high with momentum sustained despite the recent rise in mortgage rates. Conference Board consumer confidence remained around a 15 year high in Feb. Consumers were optimistic about current business and labour market conditions and expect business conditions to improve over the next 6 months."
Key events in US session:
- WTI Crude oil settles at $47.80/bbl
- EUR/USD headed toward highest close since Nov 11
- A very substantial degree of monetary accommodation is still needed - ECB's Praet
- The case for four interest rate hikes is not yet solid - Fed's Evans
- I don't expect core price inflation to reach 2% until 2019 - Fed's Evans
- USD/JPY double bottom at 200-week ma puts bulls in control
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