- FX today, once again, saw the vulnerable long dollar position being pared back further.
- The DXY took on the 94.80 support level making a low of 94.67 where Powell’s speech on Friday has weakened the outlook for Fed hike in 2019 and indeed the dot plot in Septembers FOMC meeting.
There was some optimism around the state of global trade negotiations given that Mexico and the U.S. have concluded on a deal. Mexico has been insistent that Canada comes to the negotiating table as well. The door has been left open for Canada to rejoin (albeit now with less leverage) and Trump has said that if Canada wants to negotiate fairly, the U.S. will call Canada soon which should spur up an upbeat outlook for global trade relations in general and leave a window of optimism open for US and Chinese relations – A potential truce would be risk positive for the indexes – and indeed that is what we saw today – both the S&P and Nasdaq made fresh records.
As for the euro, the better than expected German IFO kicked off the bid in European trade. A new short-term high was set but there are problematic areas in the eurozone and one needs to look to the dollar as the prime catalyst in such moves. However, DE/US spreads are tighter after Powell which will underpin the upside while a general risk-on mood will keep the euro buoyed. Sterling was higher on a broadly weaker dollar where the unwind of the crowed dollar is playing out, even as Brexit angst remains. Strangely, the pair was even able to break up through the 21-D SMA – a head scratcher and begs the question of whether this is a fade or not. DXY broke below 94.80, so there could be some room to go to the upside yet, but technically the pound is potentially running into supply territory. Regardless, the cross rallied tot he highest levels since Sep 2017 and the cross made a higher low for the 9th day in a row. We are in corporate hedging territory and 0.9090 is key as the inverted psychological 1.10 UK exporter mark.
USD/JPY has been moving in a 25 pip range in a chop around the 111 handle in a broader bear trend since the 111.40 and USD/CNY supply kicking in last week. The pair held 110.93 and the 38.2% of Aug 22-23 rise. US yields picked up after the 2yr auction which was supportive in the North America session. As for the commodity complex, high-beta FX did well, buoyed by the Chinese intervention of late and the positive tones emanating from the US/Mexico deal rippled through to the proxies out there such as the Aussie. AUD/USD was supported in general by higher commodities due to a weaker dollar and broke above the 21-D SMA. The pair added around 40 pips over the day closing North America at 0.7349.
Key notes from US session:
- Wall Street closed in the green on trade truce hopes and Powell’s easier looking 2019
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