Forex today: dollar firm again, yields up, equities calmer

Forex today had the greenback back on the bid rising through the psychological 90 mark on higher US Treasury yields and calmer equity markets with a  Senate deal to fund the government underpinning the bullish sentiment.

US 10yr treasury yields climbed from 2.76% to 2.85% while the  2yr yields rose from 2.07% to 2.14%. (Fed fund futures hardened putting the possibility the next hike to come in March above 90%). Fed speaker and non-voter Evans, advocated that the economy is “firing on all cylinders” while Dallas’s Kaplan said that inflation was below target although the economy will probably overshoot full employment adding that it was wise to remove accommodation in a “patient, balanced manner”.

As for the currencies, EUR/USD dropped from 1.2400 to 1.2250,  -0.25 % by the NY close. The German industrial output fell 0.6% in December vs -0.5% forecasted while markets strangely dismissed Merkel's conservatives negotiating and making big concessions to the SPD in the coalition deal. EUR/USD fell from 1.2349 early doors and moved into a sideways drift to 1.2282 the high before falling back to 1.2267 for the close.

GBP/USD traded from 1.4000 to 1.3860 and made a recovery to 1.3882 for the close. Markets are awaiting the BOE’s Super Thursday before positioning further while the price is otherwise driver on dollar demand with another pickup US Treasury bond yields once again. 

February has been bullish for EUR/GBP so far with bulls taking the price up to threaten 0.8900 during the European morning on Wednesday. However, the cross was running out of steam on Wednesday, failing at 0.8910 yesterday and offered below the 21-hr SMA while testing the 100-D SMA.  

Cable was quiet in previous sessions within a range of between 1.3948-68 and was weaker in NY on the basis of Brexit concerns and the discounted probability of BoE hikes and a firm dollar once again onto the 90 handle in the DXY.

USD/JPY was rangebound despite Wall Street in recovery and higher US yields while most activities in the yen were through the crosses.  USD/JPY popped lower due to weak Japanese equities overnight before recovering from under 109.00 to 109.60.

The main catalysts from here will stay what happens in stocks and in bond yields while eyes the109.70 high before a test of the 110.00 handle again should Wall Street continue to recover from this week's rout.

In a stronger dollar environment, commodities were weak and the antipodean bulls were out of luck. AUD/USD was in since 0.7880 levels down to 0.7820 for fresh daily lows below the 4hr 10 SMA at 0.7865 meeting 9/10 Jan support.  NZD/USD was offered despite the positive jobs data where traders analysed the details and concluded that wages were not rising enough. The RBNZ hammered the nail in the coffin as on hold and the bird subsequently dropped on the outcome of the meeting towards the 0.72 mark.

Key events ahead:

Analysts at Westpac noted the following key events:

• "China’s Jan trade data (any time after 1pm Syd/Mel) is expected to show growth in both exports and imports of about 10% y/y, keeping the trade surplus above $50bn. The record highs in China’s trade surplus were around $60bn, in 2015.
• The Philippines’ central bank (BSP) is expected to keep its benchmark rate at 3.0% where it has been since 2016. The peso is Asia’s weakest major currency so far in 2018, -2.4%.
• The Bank of England MPC reviews monetary policy today. All economists in the Bloomberg survey expect a steady hand at 0.5%, with markets pricing <10% chance of another rate rise before May, which is seen as almost 50/50. But there will be plenty of commentaries to accompany the decision."

Key events from the NY session:

• RBNZ Spencer: comfortable where Kiwi is, not saying 2% is where rates are going
• Wall Street's jitters not over
• Gold drops to 1-month lows
• WTI falls hard in a continuation of the Feb decline on production and higher vol