Forex today: Little respite from risk-off sentiment, yen pulls in fresh bids

Forex today showed little respite from risk-off sentiment with minor corrections in risk-FX in the U.S. following optimistic trade headlines, albeit prices meeting resistance as investors remain on the sidelines, invested elsewhere. Risk FX remains subdued, U.S. yields fell, stabilising in New York, and the Yen remained on the front-foot in London, dropping back in the U.S. The US 10 year treasury yield dropped from 2.42% to 2.36% and the 2yr yield fell from 2.21% to 2.14% until the tariff news caused both to recover a few bps.

The dollar was left to its own accord overnight, treading water in familiar ranges while the usual suspects struggled to maintain form, already suffering a hangover from the start of the week's stock market rout and beaten down again in European markets, until the U.S. the session came to the rescue. Reports that the U.S. would postpone by 180 days a decision on tariffs on EU and Japan car imports, as well as the noise of a U.S. delegation being assigned to a trip to Beijing to continue trade talks, helped lift the mood on Wall Street with stock benchmarks bouncing off their opening lows. 

• The DJIA, added approximately 116 points or 0.5% to 25,648.
• S&P 500, added 0.6% or around 17 points higher to 2,851.
• Nasdaq Composite index climbed 1.1%, or 88 points, to 7,822.

As for data, U.S. April retail sales disappointed falling -0.2%m/m (est. +0.2%m/m, prior +1.7%m/m).The Atlanta Fed revised down its Q2 GDPNow estimate from 1.6% annualized to just 1.1%. April industrial production dropped -0.5%m/m while upward revisions to March (+0.2%m/m vs prior -0.1%m/m) were a plus while the NY Fed’s Empire State manufacturing survey surprised to the upside, jumping to 17.8 in May. Lastly, May NAHB homebuilder confidence index also was a touch better this time around rebounding to 66 from prior 63.

Currency action

Analysts at Westpac summarised the price action in the euro and majors for Asia as follows:

• EUR/USD initially probed lower to 1.1178 but bounced to 1.1225 after the US car tariff news, little changed overall around 1.1200. 
• USD/JPY also round-tripped, from 109.60/70 to 109.16 and back as risk appetite improved.
• AUD/USD initially extended its multi-week decline, to 0.6915 (another low since the 3 Jan 2019 flash crash and before that, Jan 2016), as risk appetite weakened in Europe. It then recovered slightly to 0.6937 on the tariff news. Similarly, NZD/USD extended a multi-week decline to 0.6551 before bouncing. 
• AUD/NZD ranged between 1.0545 and 1.0570.

Key notes from overnight:

• Wall Street pops but caution remains and DJIA is directionless

Key events ahead:

• We have labour data from Australia today as the main focus.

Analysts at Westpac noted that last week the RBA Board said that it “will be paying close attention to developments in the labour market at its upcoming meetings.” 

"This adds another layer of interest to the always closely-watched labour force data, with the April survey due at 11:30am Syd/9:30am Sing/HK. The March report was solid, with total employment up 25.7k, taking annual growth to 2.4%. Westpac looks for a more modest 10k in Apr, with consensus 15k. We expect a steady participation rate at 65.7%, producing a 5.1% unemployment rate (consensus 5.0%). This would clearly not be welcomed by the RBA but our base case remains for the first rate cut to be delivered in August."