Forex today was broadly upbeat due to a partial recovery in European and US equities despite there not being much in the way of a catalyst for the move, certainly not in Europea. However, the US produced some strong earnings and the tech sector recovered. US rates were little changed in both countries despite another attack on the Fed by President Trump which the market has learned to ignore.
- The US dollar was treading 95 the figure and looking fragile still while there was an improvement in the EM-FX and high betas again as optimism shines through.
There was an eery silence, however on the geopolitical front and hard to say whether a storm is brewing or, perhaps, the risks have been somewhat overrated. US data was on point and once again positive which should keep the dollar in good stead into the FOMC minutes as the next significant risk for the week.
Currency action
EUR/USD was firm at the start of the US session, despite Germany’s ZEW plunging back to its 2018 low. That data was also to the weakest since Aug 2012 and even with the JOLTS data showing solid US jobs market conditions – all of which begs the question, what would happen on positive data from the EU and weak data from the US – The Long dollar position is tiring it would appear? Meanwhile, the single unit got through the 21-DMA receives pierced until US stocks bounced and helped lift the greenback across the board and there was a subsequent widening of the De-US spread in the dollar’s favour also. EUR/USD ended the North American session at 1.1572. Cable was unimpressive on Tuesday with plenty of uncertainty around Brexit still without anything concrete for traders to deal on. GBP/USD ended NY at 1.3185 having traded with the NY range of between 1.3235-1.3172. However, the jobs report and wages were a plus in European trade and indeed, on a positive feedback loop on Brexit, the BoE noise will rise and we could be looking at a far strong pound as a result. The cross was ending the North American session lower on such a divergence between the EZ and UK regarding data releases and central bank outlooks – (Germany’s ZEW falling back to its 2018 low/ UK wages on the rise – something the BoE had been forecasting). EUR/GBP ended NY at 0.8780 -0.28%. USD/JPY was recovering due to a rebound in risk and was making ground to 23.6% of the recent sell-off from the 114 handle which took the pair above hourly Cloud & 100-HMA for the first time since Oct 4th. Should US stock continue to recover, the yen will likely be under pressure to the BoJ’s liking. US yields can likely remain elevated as investors pile back into the stock markets and out of quality due to the inverse relationship between bond prices and rates as investors seek a return on their otherwise idle capital – gold prices started to come off from their highs as well. As for other commodities, they continued to perform, and the CRB is slightly better with a higher oil again – Copper consolidated. AUD/USD made a fresh short-term high within the rising wedge formation but fell shy of the R1 as it starts to run out of momentum at the 38.2% retracement level according to the 4hr charts. Net shorts were being unwound and its a two-sided coin on the basis that US equities were on the up again as the dollar picked up the bid whereas risk-on sentiment would usually be favourable to the antipodeans traded as a proxy. Eyes are on a break of 0.7150/60 zone for an extended squeeze.
Key notes from US
Wall Street closes substantially higher led by tech and healthcare
Share
