Forex today: plenty priced in, much to consider, long liquidation trade may be nearing a climax

  • However, the heavy net selling in EUR/USD for this week could be indicating that the long liquidation trade may be nearing a climax.
  • Commodity complex relatively robust despite higher yields.

Forex today was pretty uneventful in terms of price action, although there was plenty in the market to digest, especially on a fundamental and political basis.

EUR/USD remained under pressure while rising US yields continue to send short-term spreads wider and the cost of carrying a short USD position is still very expensive. (Risk reversal pricing reflects bearish sentiment/U.S. 10-yr yield hit 3.12% in European trade, the long-bond hit 3.248% and that was the highest since Oct 14)). EUR/USD crash-landed all the way down to 1.1776, (Asia high was 1.1837). The US shift opened near 1.1790 and stuck to a tight 1.1785/1.1815 range in what was a day of consolidation in the FX space. However, the heavy net selling for this week could be indicating that the long liquidation trade may be nearing a climax.

GBP/USD got a lift on the Telegraph reporting around the EU customs union where the UK would tell the EU that it is ready to stay in customs union beyond 2021. GBP/USD hit a high of 1.3568 on the news in early Asia yesterday but it was capped there as conflicting headlines turned on the supply all the way down to 1.3477 in afternoon London trade. However. in a choppy session in late London and NY, GBP/USD firmed up to close the US session at 1.3512, higher by  +0.19% within the North American range of between 1.3482-1.3527.

As for the cross, EUR/GBP ended the US session at 0.8726 and down by -0.25% within a range of between 0.8752-0.8712. The continued uncertainties around Italian politics and Brexit outlook weighs on the euro, with bulls taking the wrap at the moment. 

USD/JPY was extending its recent rally to fresh multi-month highs at levels last seen in late January in European trade, that was extended in North American trade. The high was 110.85. Both the 2Y and 10Y U.S./Japanese spread moved to fresh post-crisis highs while risk reversals have been suggesting further erosion in the premium for protection against JPY strength vs. the USD - (Buoyant Nikkei is also supportive). However, there was a dip in yields in the NY session that sent the pair down to 110.62 and US stocks struggled into the close. There was a recovery, however, and the pair moved in on the 61.8% of Nov-Dec drop and Nov's low again in early Asia at 110.86, having closed up in NY at 110.76 - Eyes are on the EUR/JPY 130 level ahead of Japan CPI.

As for the higher betas, EM-FX was weak again while all ears were on NAFTA that drew no conclusions once again, essentially meaning that it is very unlikely that anything can be agreed before the end of the year - Mexican Peso and the Loonie feel the pain. Oil, on the other hand, was supportive to the commodity -FX space to some degree, making fresh 3.5 year highs. However, copper was beaten up in Shanghai and was unable to fully recover, weighing on sentiment. - AUD/JPY a spitting image of the chart over same time periods. The Aussie was unable to get off the floor, confined to a tight range between 0.7501 and 0.7517. The Kiwi was sidelined with its wings clipped, just 20 pips above the daily lows, (0.6850) at one stage, closing at 0.6877.

Key notes from US session:

Key events ahead: 

Analysts at Westpac offered their outlook for the key events to end the week:

"Australia’s data calendar is quiet for the next few days. Japan releases Apr national CPI data, with consensus for 0.7%yr overall, 0.4%yr ex-fresh food and energy. This is so far from the Bank of Japan’s 2% target that it hardly matters if the data surprises in either direction.

Fed officials are chatty again today, starting with hawk Mester speaking at the ECB around the Sydney close, followed by Kaplan (again) and Brainard (again) during NY trade.

There is plenty of risk for CAD in the NY morning: Apr CPI and Mar retail sales. Consensus is for retail sales ex-autos to rebound by 0.5% after a flat Feb, while CPI is seen up 0.3%mth, 2.3%yr, a little lower on the core measures."

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