Forex today was taking some of the 'umpf' out of the dollar while UST-10yr yields remained elevated at 2.28%.
The greenback dropped some of the FOMC fueled gains from yesterday's trade, with the DXY closing down 0.3% on the day in the US session.
The markets are not as convinced as they were yesterday over the Fed's dot plot, or in fact, those that doubted remain as doubters and we must remember that spot FX is highly reactionary to, in the "moment", events and tends to adjust any overshoots just as we have already begun to witness in today's price action in the dollar.
For the US dollar to have any legs and to be able to sustain the post-Fed optimism for 2018 and subsequent dollar market positioning, the forward yield curve needs to reflect it too, although it still remains relatively subdued making for what seems to be a dovish series of hikes between now and the end of 2018; This will potentially weigh on the dollar medium term.
In fact, UST/Bund 10-year spreads narrowed and completely outpricing the Fed move, leaving the euro better bid with markets' eyes now on the ECB and to play catch up with the Fed. However, the opposite could be said of the Yen. Following the BoJ's expected dovish outcome overnight, US-JPs rate differentials are an anchor on the Japanese currency and USD/JPY ran up a score through the above 200 DMA for the first time since July 2017 towards trend resistance at 112.90-95.
Sterling was consolidating below the 1.26 handle awaiting PM's keynote speech tomorrow in Florence but buoyed by what appears to be an agreement from May to pay the EU during the two-year transitional period, regarded as a good deal for the UK.
As for the Antipodeans, metals were hit hard by the downgrade of the Chinese economy by the S&P; notably with the Aussie down to 0.7916 from 0.8034 while the Kiwi fell from 0.7365 down to 0.7291, (NZ election pressures as well). This could be something to keep an eye on should the dollar remain better bid and the short side unwound in respect to what effect that will continue to have on the overcrowded long side in the industrial and precious metals market. CAD also fell into that trap on broad-based commodity weakness with lower oil ahead of OPEC tomorrow.
Key events ahead in Asia
There are no immediate risk events in Asia, but analysts at Westpac noted the weekends general election in New Zealand. "The general election is held on Sat 23 September. Voting closes at 7pm NZT, and the results of most votes will be available that evening. Polls have indicated a close race."
Key notes from US session:
- Election Poll: NZ ruling National Party maintains lead
- NZ Elections: Polling suggests that National would gain the largest share of votes - Westpac
- US Pres. Trump announces executive action targeting companies trading with N. Korea - LiveSquawk
- Wall Street pares early gains, closes modestly lower
- WTI: repositioning ahead of OPEC/Non-OPEC meeting (Vienna), in $1.00 range still around $50 handle
- Brexit Florence speech: clock ticking as key European Council vote draws nearer - ING
- BoJ: remains a laggard and that's yen negative - Rabobank
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