Forex today: dollar weakness continues, euro up to a few pips shy of 1.23 the figure

Forex today were somewhat subdued with it being Martin Luther King Day in the US, although that did not keep the bears in the cage when it came to the dollar.

The DXY that is technically on a knife edge was down -0.55% into the close for the NA Forex session. The euro took up the limelight and has been in the hands of the bulls ever since the ECB minutes for December reminded the markets that it is not just the Fed that is on the path towards normalisation, (CB’s Hansson was seen as hawkish on guidance and EUR’s recent strength in European trade. 10yr Bund yields tested their July ’17 highs again). The euro was then further propelled on the outlook for political stability in Germany from Friday's headlines, pushing the single currency to test territory towards the 1.23 handle. For Monday, the euro has traded between 1.2187 and 1.2296. 

Sterling rallied as far as 1.3819 during the European day on dollar weakness making for the highest level since Britain voted to leave EU (on 23 June 2016), closing around 1.3795. The cross traded better bid on euro strength between 0.8872 and 0.8910 the high, closing 0.8892.  The Yen was higher again and picked up the pace in the NA session marking up further gains over the dollar and scored as high as 110.32 from 111.18. While the dollar is weaker, at the same time, local media have highlighted the risk of an upgrade to the BoJ’s growth outlook ahead of the BoJ policy meeting that is scheduled for January 23rd. 

The commodity currencies, NZD, AUD and CAD, were performing robustly with the Kiwi closing at 0.7303 and a handful of pips below 0.7315 as the high, +1.0%outperforming. There was a withdrawal of dried milk products by French producer Lactalis and the Rennie Report (recommending RBNZ committee based policy) was also supportive. AUD/USD also took advantage of the dollar's weakness and traded between bid between 0.7901 and 0.7979. The USD/CAD continued south in a bearish gap from 1.2469 to 1.2402 the low as WTI rallies further on the $64 handle. 

Key events for the day ahead

Analysts at Westpac noted the key events coming up as follows:

"A quiet calendar sees motor vehicle sales as the only release for Australia. Following a 0.9% fall in Q3, Oct/Nov saw a slight lift. Confidence improved amongst households into year end, but their willingness to spend remains sub-par. In NZ, Q4 readings for Westpac MM employment confidence and the NZIER survey of business opinion are due.

In the northern hemisphere, inflation will be in focus. For Germany, the flash estimate of 1.7%yr is likely to be confirmed; that is a tick lower than November, but close to the ECB’s 2.0%yr target.

Meanwhile, in the UK, annual inflation is currently well ahead of target at 3.1%yr, though the inflation pulse is likely at its maximum and will subside hence. Also out, the Empire State manufacturing survey in the US."

Key notes

• EUR/USD analysis: too far, too fast, but still bullish
• Dollar's slump paused but maintains the sour tone, trading at fresh lows
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