Forex today was dominated by prospects of the ECB discussing the end of their asset purchase program which sent the euro bid once again and took the dollar down a peg or two across the G10’s, bar the yen that had USD/JPY testing through the 200-D SMA.
The DXY, subsequently, sank within the range of 93.4220-93.8910, ending in NY at 93.6112. The US 10yr treasury yield climbed from 2.93% to 2.98%, as investors piled into the equity markets. The S&P 500 ended higher by 0.9%, as traders turned hungry for risk towards the end of the session, sending the Dow up by +346pts and the Nasdaq +0.7% for another record high. The Fed fund futures priced a rate hike next week as a dead cert and adding an additional hike by year end, (albeit only about 20% chance of 2 hikes in H2 2018).
As for the other currencies, the single unit was bid in European trade with some Euro PMIs coming in better than expected yesterday and boosted by ECB’s Weidmann and Praet advocating for the end of bond purchases this year. Subsequently, EUR/USD rallied through the 23rd May high of 1.1767 and fell just shy of the 1.18 handle at 1.1795 before a bid in the dollar emerged in late NY leaving the euro down at 1.1760 into the close. (21-hr SMA is located at 1.1758).
The pound was sent to a two-week high at 1.3438 in early European markets and on the coattails of a bid in EUR/USD. Cable went onto make a high of 1.3443 but was offered there on the back of Brexit concerns over PM May’s latest conundrum over the Irish border where she has annoyed Brexit Secretary, Mr Davis. Consequently, GBP/USD ended the US session at 1.3405 and +0.07% within the North American range of 1.3444-1.3401. As for the cross, EUR/GBP was better bid on a hawkish turn of events in the ECB’s rhetoric, ending NY +0.33% to 0.8778 after rising by a quarter-penny to 0.8767 during the European morning.
USD/JPY bulls took on the 200-D SMA in NY, located at 110.19 currently. With the VIX lower, stocks higher, the only thing standing in the way of the bulls are the probable large volumes of Japanese exporter hedging orders going on between here and the 110.62 target level, being the 161.8% off May low & 76.4% of May drop. USD/JPY fell back to a close of 110.14, but better bid while above the Kijun line down at 109.75 while markets await the outcome of next week’s various showdown events, including the historic summit between Trump and N.Korea leader Kim Jong-un.
As for the commodity sector, less volatility was favourable for the Aussie that was able to hold onto to the overnight GDP gains at 0.7672 and extended to 0.7676, (testing trend resistance), in NY after a pullback to 0.7638 in European markets. Copper’s rally is also a supporting factor for the commodity-linked currency while Chilian supply concerns elevate prices. AUD was the best performer in the G10 over the day. At the same time, however, the Kiwi dropped back from the one-month high and moved into a consolidation around 0.7030.
Key headlines from US session
- Funda-FX wrap: all eyes turning towards inflationary risks, ECB to address QE next week
- Wall Street: Nasdaq hit a new all-time high, Dow Jones closes above 25,000
Key events in Asia
Analysts at Westpac explained their outlook for today’s key events as follows: “Australia’s busy data week continues at 11:30am Syd/9:30am Sing/HK with April international trade. Given that net exports were the largest driver of the swing in GDP from a modest 0.4%qtr in Q4 2017 to swift 1.0% growth in Q1 2018, it is well worth watching this early update on Q2 trade.
We were surprised by the strength reported in March exports, given the slide in commodity prices that month. A trade surplus of A$1.5bn was reported (revisions can be substantial). We look for a pullback to $0.9bn in Apr, with imports up 1% and exports -0.9%. Iron ore and coal export revenues should fall, along with gold and rural goods, while LNG rises. Consensus is $1.0bn.
China releases May FX reserves data. The European and US data calendars seem too low key to impact markets.”
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