Forex today: what a day, the start of the demise of the dollar?

It was a mixed picture today in Forex and price action that needed some diagnostics to cognize it all. 

Firstly, the markets have been pricing in three rate hikes from the Fed in 2018 but have been adjusting to the recent anticipation of inflationary pressures since last month's NFP's and higher wages leading to a spike in US yields as well as the recent stock market rout, termed by some observers as just a "healthy correction that needed to happen".  Stocks fell, margins were called denominated in dollars, the dollar rose, yen and CHF went bid and gold was the laggard behind the safe haven plays. 

However, on today's CPI, (Street starts calling for four rate hikes in 2018), combined with a poor retail sales, were leading to terrible downgrades to the GDP trackers and the dollar took a beating. Despite higher US yields, with the 10-year note yield moving within a range of between 2.8059% -  2.9095% (the high scored by end of the day post-CPI data ) and after opening at 2.8312%, the DXY was down over -0.60% within a day's range of 89.057 - 90.124.  The Atlanta Fed model is now at 3.2% from 5.4% two weeks ago.

Another factor weighing on the outlook for the dollar is the fact that the Eurodollar curve beyond 2019 suggests a harder landing for the US economy than what was first priced into the currency, and coupled with rising US deficits and potentially tighter rate policies abroad, the dollar is likely to stay lower for longer from here. A break below 88.67 DXY and that support line opens up a drop to 86.69 and 85.00 as the last defence in the longer term.

As for the other currencies, EUR/USD opened near to 1.2355 before the dollar rallied on the CPI printing EUR1.2275. However,  then the retail sales were digested and the market bid up the euro to 1.2335 before risk accelerated. On the rally in risk, the euro was dragged higher by a bid in EUR/JPY and dollar weakness and broke through 1.2440.

GBP/USD was well bid by the close of the NY session tucked in around 1.3990 and higher by +0.75% having traded within a range of 1.4008-1.3801. The retails sales was the saving grace for the bulls as the CPI initially had the price testing the lows of that range while backed up by the prospects of a May (64%)/June (86%) probability for a BoE rate hike.

EUR/GBP was off by 0.1% at 0.8885 within a range of 0.8920-0.8876 and falling just shy of 0.8927 as being the Jan 12the high this year.  In terms of data from the eurozone, EZ Q4 GDP matched the forecast of 0.6% qq and 2.7% yy while EZ IP came in at  5.2% yy and beat the 4.2% forecast. 

The yen was a top performer by the close of play in NY, picking up the safe haven bid despite a turn around in stock prices. Both the S&P and Dow broke up back to test their 200 hourly SMA's and on to test the 10-D SMA's, despite a jump in Treasury yields.   USD/JPY fell below the  2017 low of 107.32 but was still holding above the  61.8% of 99-118.66 rise at 106.51.

As for the antipodeans, well, they took advantage of this and the Kiwi's blue-sky rally took the price up to challenge the descending trend line resistance at 0.7374. AUD/USD opened near 0.7870 before the sales data took down the dollar and enabled the Aussie to clear the Feb 6th highs before a look in at 0.7920 towards the close while traders look ahead to the Jan jobs data. 

Key events ahead 

Analysts at Westpac offered their outlook for today's risk event:

"Australia’s Jan labour force data is due at 11:30am Syd/Mel. Job creation has been very strong by historical standards over the past year, reaching 3.4%yr in Dec when another 34.7k net new jobs were reported. It is very difficult to sustain such a pace – GDP probably only grew about 2.5% over the same period. So a negative reading on employment is a risk at any time, simply as a statistical correction. But with various other indicators of the job market still positive, Westpac’s +15k forecast is in line with consensus.

The unemployment rate seems likely to remain at 5.5%. The 5.4% reading of Oct and Nov 2017 was the lowest since 2013.

Bank Indonesia is expected to hold its key interest rate steady at 4.25% while Singapore releases Jan exports data.

The US data calendar holds some interest though isn’t vital – Feb regional manufacturing surveys from the New York (Empire State) and Philadelphia Federal Reserve banks, Jan producer prices, Jan industrial production and Feb NAHB homebuilder sentiment."

Key notes from US session:

Wall Street clinches strong gains after initial slump