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Forex today: dollar makes a comeback, yields reflect FOMC balance sheet reduction hints

Forex today was a recovery in the dollar and rates while Wall Street dropped like a stone, (Barr the Dow Jones record highs), lead by the technology and transportation shares despite earlier gains in the S&P 500 on good Facebook earnings.

Yesterday's FOMC reactions were pared although yields reflected the balance sheet reduction theme with them rising in the 10-year benchmark +0.94% at 2.3086% at the time of writing, rising from 2.27% to 2.33% on the day. The Fed fund futures yields were pricing the chance of a December rate hike at around 46%, slightly higher than yesterday's 45%. 

The DXY was up by +0.27% at 93.92 at the time of writing, helped along by the US durable goods orders that rose 6.5% in June (vs 3.9% expected), boosted by aircraft orders. The euro took a hit overnight and extending the losses to a low of 1.1650 in morning trade before recovering in a minor correction back to 1.1677 at the time of writing. USD/JPY was a partial round turn in the overnight sell off recovering over 50% of that to 111.71 before meeting supply again in late morning trade back down to 110.95.  Sterling was a one-way play, dropping overnight from 1.3150 and consolidating the lows a cent lower in the US session. 

WTI was supported on the $49 handle, but USD/CAD ramped up gains from 1.2413 lows to 1.2576. Commodity currencies were poor performers with the Aussie off from its two year-highs and down to 0.7956 and the Kiwi fell from its own two-year highs above 0.7550 to 0.7479. 

Event risks in Asia and last sessions for the week:

Analysts at Westpac offered the key events for the day ahead and previews as follows: 

Australia: Q2 PPI was last at 0.5% with the quarterly pace having lifted through 2016H2-2017H1.

Japan: The Jun jobless rate is expected to drop to 3.0% from 3.1%, partly reversing May’s 0.2ppt lift. Jun CPI is expected to maintain a 0.4% yearly rate but the core measure – ex fresh food & energy – is expected to carry on its downtrend into deflationary territory at -0.1%yr.

Euro Area: Jul economic confidence and the Jul business climate indicator are anticipated to hold a high level while Jul consumer sentiment final earlier showed a consistent, strong flash reading. Jul preliminary CPI readings are released for Germany, France and Spain ahead of the continent wide release on Monday.

US: Q2 GDP (advance) is expected by the market and Westpac to increase 2.5% annualised (last 1.4%). However, risks are to the downside centred on the consumer. Given confidence and jobs growth, consumption should be stronger but partials suggest services spending will struggle to accelerate while durables and non-durables are likely to underwhelm. The Q2 employment cost index is expected to rise 0.6% holding the yearly rate at 2.5%yr. Pass through from a tighter labour market to wages has been lacking to date and so a repeat of the 0.8% bounce in Q1 is unlikely.

Key notes from US session:

US Durable Goods Orders: strong headline and encouraging details - Wells Fargo

Atlanta Fed: GDPNow model forecast for real GDP growth in Q2 is 2.8%


 

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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