Forex today held a number of key headlines for the space, namely with the Italian coalition, with the League/5 star coalition wanting a large Italian debt write-down, soft-Brexit progress, a tentative N.Korean summit looking less likely that it will go ahead and higher US yields for longer.
The Treasury market is embracing the permanently higher rate structure and the dollar bulls are loving it. DXY was better bid within the 93.1350-93.6320 range while the US 10yr treasury yield was rising in the NY afternoon to 3.10%, making for a fresh high since 2011. The 2yr yields climbed by 2bp to 2.59% and made for the highest since 2008. Prospects are now for a rate hike from the Fed each quarter in 2018, making the first hike to be June. Meanwhile, US data was ignored with the Apilr housing starts arriving at -3.7%, (March revised higher), while the April industrial production arrived at +0.7%.
As for other currencies, EUR/USD was creeping higher in the 1.18 handle after European offers below to 1.1763 where higher US yields, (10-yr 3.06%), pressured the single currency. At the same time, political uncertainty was a weight on the euro. The breaking pints were seen as 1.1710 and 76.4% retracement of 1.1553-1.2556 rise at 1.1790. this level gave out in NY and the pair managed a bounce up to 1.1830 resistance. EUR/USD closed at 1.1811.
GBP/USD stuck to a range of around 1.3500 recovering from 1.3450 lows, (GBP/USD ending US 1.3500 and lower by 0.1%, within a US range of 1.3510-1.3456). However, an early Asia time zone report in the Telegraph gave the Bulls a lift on the back of the UK to inform the EU that it intends to remain in the customs union. GBP/USD rallied to 1.3545. (On the flipside, stops are tipped below 1.3450 (an option barrier level)).
EUR/GBP was down to 0.8731 in European trade on the back of the Italian political concerns, below the BoE lows. In the Telegraph, it was reported that "The Prime Minister's Brexit war Cabinet earlier this week agreed on a new "backstop" as a last resort to avoid a hard Irish border, having rejected earlier proposals from the European Union," and EUR/GBP dropped to 0.8720 as the pound caught a bid on such soft Brexit related headlines.
USD/JPY was lower on London's the risk-off session and bears had a look in at 110.05. However, the pair bounced to 110.35 in late NY with a rise in US treasuries. The 10-yr yields held at 3.1% and remained in the vicinity of the highest levels since 2011 - overshadowing the uncertainties as to the N.Korean / US summit taking place in June or at all. N.Korea's supreme leader has been hacked off by demands to fully give up its nuclear program, rejecting the administration's demand for what it called "unilateral nuclear abandonment."
"If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue and cannot but reconsider our proceeding to the Democratic People's Republic of Korea./ U.S. summit,"
the first vice minister for foreign affairs wrote.
As for the higher betas, regardless of a sustained wellness in the dollar, the Aussie and Kiwi have a good session with copper and oil supporting the outlook for the commodity-fx. AUD/USD had dipped about 25pips on the soft Australian wages in Asia but was reclaiming lost ground back to 0.7475 inside a couple of hours of the release and extended the upside throughout London and NY trade to 0.7520 and for a near to close at 0.7517. NZD/USD recovered from a six-month low at 0.6851 to around 0.6900 and was up 0.5% on the day.
Key notes from US session:
Funda-FX wrap: risk elevated despite tentative N.Korea /US summit and Italian politics
Key events for Asia:
Analysts at Westpac noted the key events ahead as follows:
"At 11:30am Syd/9:30am Sing/HK we see Australia’s April employment report. Consensus in the Bloomberg survey is for the unemployment rate to hold at 5.5%, with jobs expected to have risen 20k (Westpac +17k and 5.5%). "
"New Zealand’s Labour-led coalition delivers its first budget from 12pm Syd/10am Sing/HK. Our colleagues in Auckland expect surpluses to continue, with the new government committed to selected spending promises, roughly offset by higher tax revenues than previously projected."
"China vice premier Liu He is due to discuss trade issues in Washington DC with US treasury secretary Mnuchin, commerce secretary Ross and US trade representative Lighthizer. Wires reported that trade advisor Navarro was not invited, which could be a sign of conciliation given Navarro’s long-standing anti-China stance."
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