- Forex today was another day for volatility traders.
- The dollar was mixed and investors were playing the risk-off card.
We are starting to see the yen strength, most probably as markets get set for repatriation flows back into Japan:
- USD/JPY: a case for the downside, the yen picks up repatriation flows, AKA, the safe haven bid as macro picture deteriorates
The DXY was treading water on the 95 handle at 95.04 into the close and within the day’s range of between 95.21 and 94.93. The ADP missed expectations arriving in at 163K, vs 219K previous, (217K revised) and 190K forecasted. That bearishness offset the bullishness in the services ISM and the initial jobless claims falling to a 49 year low. The US 10-year treasury yields were down at 2.87%, -1.00% from 2.91%.
European-FX
EM contagion sentiment seems to be spreading and the EUR/USD was faded from 1.1650 down to 1.1604. Investors remain concerned over the EZs bank exposure to EMs – (However, while EZ banks will likely see defaults on some Turkish loans, they stand far above the European regulators Tier 1 capital ratio – (ratio of a bank’s equity to its assets), which are at around 15.% vs. the 10.50% requirement – So, the defaults shouldn’t cause too much upset in the grander scheme of things – That said, its the ‘knowing of the unknown’ that markets run a mile from. However, in NY, there was a relief rally in EM currencies, spurred on by news that the IMF aims for a quick conclusion to Argentina talks, and the peso climbed forcing a tighter DE-IT & DE-US spread that lift EUR/USD off the aforementioned lows and onto 1.1632 – NY closed with the price oscillating at around 1.1620. The Nonfarm payrolls will be the next major risk event for the pair but the yen is something that is also something to keep a close eye on in terms of EUR/JPY which is breaking out to the downside and towards 128.31 recent lows and the 21-D SMA at 128.06.
Sterling was ending the North America session at 1.2932, higher on the day by 0.19% with a weaker DXY. Bullish sentiment is stacking up with respect to Brexit, but that saga continues and headlines change like the wind. The Irish border remains a sticking point and positive soundbites from the ongoing negotiations are uncountable, leaving a cloud of uncertainty that has been anchoring the pound on breakouts leading to fades. Labour’s Stephen Kinnock said Mr Barnier described the Chequers plan as “mort” (which means dead in French). However, markets are waiting for a transcript of the meeting between Mr Barnier members of the UK’s Brexit Committee that took place earlier this week where Barnier was reportedly heard saying in French, “Les propositions sont mortes” (the proposals are dead). For not, markets are latching onto the bullishness in the meeting where there were positive elements seen by the EU to the Chequers plan and the possibility for further discussions to address issues that still create problems for the EU. As for the cross, EUR/GBP ended NY on Thursday at 0.8985 -0.31%, whereby investors are concerned about the exposure of EZ bank to the EM-FX crisis.
Asia-FX
The bid in USD/JPY met heavy supply where the outlook is deteriorating on macro-scale in terms of the health of the global economy due to trade war risks. We had wires crossing recently that Trump is considering to impose tariffs on Japanese autos and USD/JPY dropped hard on the knee-jerk to the news. USD/JPY traded as low as 110.64 from highs of 111.74. As for the commodities, these are paining a very poor outlook with copper, on its knees and on thin ice and AUD/JPY extending its downside – (Both are barometers of investor risk appetite, and copper more so a gauge of global economic growth). The CRB index is also completing multi-year topping pattern. AUD/USD dropped from 0.7210 to 0.7166 but picked up a bid back to 0.7210 due to the relief rally in EM-FX and a shake out in the DXY. However, the pair settled lower at 0.7195 as investors figure EM-FX risks will linger on.
Key notes from US session:
- USD/JPY: a case for the downside, the yen picks up repatriation flows, AKA, the safe haven bid as macro picture deteriorates
- AUD/JPY: risk-off in play and here to stay – looking for breakout below Bollinger band support
- Tech and energy weigh on Nasdaq and S&P 500, Dow closes with small gains
Key events ahead:
Analysts at TD Securities offerd their outlooks and previews for teh day ahead:
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