Forex today was broadly encouraging for markets that seem more prepared to take the plunge in terms of risk, despite the recent turmoil and high levels in volatility of late.
The greenback, however, was not having a very good day in NY, down below 89.70 for the best part of the session within a range of between 89.609 - 90.177 and only recovering off the lows later in the day and into the close finding territory to 89.73.
US 10yr treasury yields were also giving back some ground to 2.83%, although the 2yr yields rose from 2.06% to 2.10%. The Fed fund futures yields have been steady once again, an according to a Bloomberg estimate, they are pricing the chance of another rate hike in March around 90%.
US stocks were rising after early losses on Wall Street while the S&Ps and N225 (cash) were still supported by their 200-DMAs. It was really a day of traders awaiting for this wee's showdown that will come in the form of CPI.
There were are lack of real fundamental drivers, although Fed speakers, Cleveland Fed's Mester who argued that the market rout was not impacting economic outlook and that further rate hikes are needed this year and next while Powell's prepared remarks in his swearing-in ceremony were bullish around the US economy, adding some support to the euro as the day came to a close.
Other noise came in as:
- N.Korea warning to S.Korea after a visit, to volume down on border propaganda.
- Trump weighs tariffs, quotas on U.S. steel, aluminum imports.
- ECB's Draghi says not his job to regulate Bitcoin.
- German SPD leader quits in a bid to calm party after coalition deal.
As for price action in the forex space, EUR/USD climbed from 1.2280, ( just below the 200-Hour SMA), to 1.2360 within some choppy price action early, despite a lack of drivers, making a high on Powell's prepared remarks where a Bloomberg headline decided to run with "remain alert to any financial stability risks", indicating that dovish hikes would be required should the stock markets continue to unwind. The high was faded as the day drew to a close on the Asia handover where his more optimistic comments were supportive of the greenback.
GBP/USD was in recovery mode in NY after a sell-off from in the 1.3920's down to 1.3851 scored in late London despite that UK Jan CPI held at 3.0% y/y and just above expectations while the core inflation was rising from 2.5% to 2.7%. the high was scored on the back fo the data but were not sustained in an environment where Brexit concerns 'trump' the May hike probability that has risen to 2 in 3 from 1 in 2 after the BoE's recent "hawkish hold" and hawkish MPC comments.
As for the cross, EUR/GBP dropped to 0.8859 on the UK data having threatened 0.89 early Europe but then recovered with the rally in EUR/USD. The single currency took up the driving seat in the early part of the US session moving up through the 21-hr SMA at 1.2313 while cable lost its footing. EUR/GBP closed at 0.8896.
USD/JPY was offered yet again falling from 108.80 in Asia and European trade, making a low of 107.42 before a minor correction took place in NY towards the 108 handle, capped at 107.84. Markets are reluctant to take on risk ahead of this week's showdown in US CPI. Japan Q4 GDP revisions will be out in Asia but likely ignored ahead of more concerning events. ahead in the week.
Meanwhile, the Aussie was choppy and fragile in London, falling to 0.7828 from 0.7870 and closing at 0.7858, all the while capped below the 200-H SMA, with dips heavy on bid in EUR/AUD. AUD/JPY came to the rescue as risk improved and helped the Aussie back above 0.7850.
As for the Kiwi, a new short-term high was short-lived and the bird lost it wings in Europe's morning before opening NY around 0.7290. The bears mounted up in NY as well and pushed bulls back to 0.7265/70 on the Asian handover.
Key events to come:
Previewed by analysts at Westpac:
"At 10:30am Syd/Mel we see the Australia Feb consumer sentiment survey from Westpac and the Melbourne Institute. Sentiment was on the soft side for much of 2017 but rose sharply in Dec and Jan. The headline index of 105.1 in January was a high since Nov 2013.
At 10:50am Syd/Mel we see Japan’s Q4 2017 GDP report. A modest 0.2% q/q rise is expected after above-trend readings of 0.7% in Q2 and 0.6% in Q3. The Bank of Thailand is expected to hold steady at 1.5%.
The kiwi could respond to the RBNZ’s inflation survey if Q1 shows a sharp move from Q4’s 2.02%.
Wednesday is the key day this week for US data: Jan retail sales and CPI. Retail sales growth has been strong since Sep 2017 (with some help from post-hurricane spending), so the more muted 0.2% m/m gain expected in Jan should not be cause for concern. Jan CPI is seen to rise 0.3%, with the core measure estimated to be 0.2%, 1.7%yr. Markets should be sensitive to this inflation update."
Key notes from US session:
- Powell's swearing-in ceremony lifts the euro before a fade
- Wall Street posts shallow advance ahead of US inflation data
- Funda and political news wrap, the key headlines so far
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