FX today had risk hanging in the balance around the meltdown in China and indeed the forthcoming date from when U.S. tariffs on $34bln worth of Chinese exports are set to go into effect on July 6th. However, sentiment picked up in the US session following a sea of red overnight in European markets.
The DXY was en-route to fresh TD highs, trading at the higher end of the 95.0900-95.5310 range while the US 10yr treasury yield climbed on Thursday from the daily lows of 2.82% to 2.85%. There was little reaction to the US Q1 GDP that had been revised lower to 2% from 2.2%, while traders instead take the positives out of the spring recovery in data performances. However, Fed’s Bullard (dove) warned of inverting yield curve.
Action in currencies
As for other currencies, the single unit was flat by the close of play, having traded between 1.1530-1.1600 while there was no new news on the EU summit where leaders have failed to agree on a statement so far. Risks are also titled to the downside o the sentiment that Italy’s refusal may cause Merkel coalition to break up. However, end of the period flows and book-squaring supports for the time being.
Meanwhile and across the channel, sterling was soft and lower by 0.3% by the close of play, down for a third day making a fresh low for 2018 at 1.3050, ending the NY session at 1.3075. The Bank of England chief economist Haldane was explaining why he voted for a rate hike last week but the noise over an EU contingency on a Brexit deal continues to weigh on the pound while PM May is feeling the pressure to get a move on. As far as EUR/GBP goes, the cross ended the NY session at 0.8843, higher by +0.37% within an NY range of between 0.8871-0.8839, again, weighed supported Brexit uncertainties rather than the intransigence over migration at the EU Summit. Stock markets were up in NY and the USD/JPY climbed from 110.30 to 110.65 and performed better than expected given the significant headwinds in the markets, holding above the 200-D SMA for the second day. However, the risk is to the downside given what might come from tariffs kicking in, potentially sparking a chain reaction of retaliation from China. However, for the meantime, Japanese data today are next key risks, given the spike in the yen in retail sales yesterday, and indeed we have U.S. Personal and Chicago PMI to follow along with the EU summit as Friday’s event risks. Meanwhile, the Fed fund futures yields continue to price 1.5 more hikes in 2018.
As far as the high-beta FX space went, these pairs were broadly higher with the CAD and Aussie turning on their heals, although the bird was underperforming in the aftermath of the dovish RBNZ, extending losses from 0.6780 to 0.6746. USD/CAD dropped from 1.3350 to 1.3241 while the Aussie’s bounce was less striking and lead to nowhere, consolidating the previous day’s fall to a low since Jan 2017 within a range of between 0.7330 and 0.7360. Metals were hammered with boith copper and silver breaking primary trend support levels. Gold fell sharply again as well. China remains a big threat and traders are left scratching their heads given the lack of intervention in both stocks and FX.
Key notes from the US session:
- Wall Street records modest gains on Thursday
Key events ahead:
Analysts at Westpac offered their outlook for the key events for the end of the week as follows:
“Australia’s calendar is effectively empty again.”
“Japan releases a flurry of data today, though USD/JPY has been happy to ignore such releases for a long time. They includes May unemployment and housing starts and Tokyo Jun CPI. Bank Indonesia reviews policy today, with a majority of forecasters looking for another rate hike (4.75% to 5.00%) to try to support the struggling rupiah.”
“Various national European June inflation reports culminate in Eurozone CPI, with consensus 2.0%yr overall but only 1.0%yr on the core measure. The ECB inflation target is for CPI to be below, but close to 2%. The European Council summit concludes in Brussels.”
“The US data calendar is well worth watching. May personal income and spending data includes the Fed’s preferred inflation measure, the personal consumption expenditure (PCE) deflator. This is expected to have risen 2.2%yr overall, boosted by gasoline prices and 1.9%yr on the core measure. The June Chicago manufacturing survey is also due. It typically runs above other regional surveys – consensus is 60.”
“Canada Apr GDP is expected to have been flat on the month but up 2.5%yr.”
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