Forex today: US retail sales huge miss, but dollar gets let off and holds 97 handle

US data on Thursday was a huge let down for the dollar bulls hoping for a better outcome in situ to yesterday's solid US CPI result. The data posted a sharp 1.2% fall in December which was the largest monthly drop in nine years. The consensus was expecting a 0.1% gain. The markets were of the mind that the data was a blip, perhaps due to the stock market rout and the partial government shutdown and is instead concentrating on the stronger jobs market and wage inflation. There was also a sense of optimism as another US government shutdown appeared to be averted. The greenback was capped at 97.29 but held onto the 97 handle by the skin of its teeth. However, the US 10yr treasury yield did fall from 2.71% to 2.64% due to the retail sales data while 2yr yields fell from 2.54% to 2.48%

However, the US and China trade headlines were concerning and "have made little progress so far" during talks in Beijing, according to a WSJ report and a more recent Bloomberg story, whereby corporate governance and structural reforms are "an extremely sensitive issue that is seen as a non-starter for Chinese leaders," the Bloomberg story argued, adding, "The hurdles raise questions about whether negotiators can meet Trump’s criteria for pushing back the March 1 deadline for more than doubling tariffs on $200 billion of Chinese goods."

Currency action:

Analysts at Westpac explained the key action across the G10-FX space as follows:

"After yesterday’s report that the US was willing to extend its deadline for a trade deal with China by 60 days, a competing story in NY trade claimed that the two sides had made little progress. AUD/USD dropped to 0.7072 on the news but recovered to just above 0.7100, about flat on the day. RBA's Kent said the recent A$ depreciation is helpful for the economy.

EUR/USD rose 0.3% on the day to 1.1300, bouncing on the US retail sales data. The underperformer was GBP, which fell from 1.2880 to 1.2775 following Parliament’s  rejection of PM May’s plan to renegotiate Brexit. USD/JPY fell from 111.10 to 110.50 as US yields tumbled. Outperformer NZD remained elevated between 0.6820 and 0.6855. Hence AUD/NZD fell further to 1.0369 – the lowest since June 2017."

Key notes from US session:

• DJIA pressured on its advance to the 76.4% Fibo at 25668

Key events ahead:

China Jan CPI and PP is on the cards for Asia.