Forex today: a positive risk tone until Trade war noise hit early Asia

• Forex today was coming with a positive risk tone.
• US 10yr treasury yields climbed up from 2.86% to 2.87% and the  2yr yields popped from 2.56% to 2.58%, making for an impressive stance and just shy of the decade’s high.
• Trump administration is reportedly planning to publish a list of ‘new’ tariffs.

Forex today was coming with a positive risk tone until news came in early Asia that the Trump administration is reportedly planning to publish a list of ‘new’ tariffs that are to be imposed on $200 billion worth of Chinese goods.

The greenback was better bid throughout London but was toppled in NY, trading between a rage of 94.0180-94.4750, cling NY at 94.15, +0.9% on the day. US 10yr treasury yields climbed up from 2.86% to 2.87% and the  2yr yields popped from 2.56% to 2.58%, making for an impressive stance and just shy of the decade’s high. Meanwhile, the Fed fund futures yields continued to price 1 ½ more hikes in 2018.  As for data, it was very quiet o that front and markets await the US CPI this week. However, we did have the  JOLTS that came with a 200k+ drop in job openings to 6.62mn for May.  

Currency action

As for other currencies, USD/JPY was impressive on the 111 handle but bulls gave up in the end and dropped back below the 111 handle on the Trump trade war noise in early Asia. The pair went from 111.00 to 111.35 making for a two month high.  For the pound, UK data came in mixed and the price action in sterling was mostly a chop between 1.3220 and 1.3301. May’s trade deficit beat expectations -GBP2.7bn vs the expected GBP3.4b. Then we had the inaugural ONS release of monthly GDP. This fell in as being in line with expectation as +0.3% m/m for May. We also had the UK political headlines, with further resignations from May’s cabinet. However, on the plus for sterling bulls, German Chancellor Merkel welcomed UK PM May’s Brexit plan. For the euro, this has a return ticket from 1.1750 to 1.1690 and back again. The ZEW surveys came with a drop in German current conditions as being 72.4 vs the expected 78.1 and prior 80.6; (Germany -24.7, exp. -18.9, prior -16.1; EZ -18.7, prior -12.6). High-beta FX was mixed and traced the dollar’s ebbs and flows. The Antipodeans were also performing round trips with the Aussie softening its grip while metals were sent back to the downside again weighing on AUD/USD, despite china’s bounce. The pair went from 0.7470 to 0.7430 and back again before being hit up and falling back to 0.7440 on the US tariff headlines. The kiwi closed at 0.6830, up from a session low of 0.6806. USD/CAD turned a corner, snapping a nine-day slide ahead of the BOC’s expected to hike tonight.  

Key notes from US session

Wall Street closes higher on the back of upbeat earnings figures

Key events ahead

Analysts at TD Securities offered out what they are watching as follows:

• “The  Bank of  Canada  is widely expected to deliver a 25bp hike. The Bank should reiterate that hikes will be gradual and guided by incoming data, but we do not expect additional forward guidance. Though GDP and CPI forecasts should be stable, FX focus will be on the Bank’s messaging over prospective risks to the outlook, including trade. Note here the Bank will be incorporating tariffs already announced into its projection.
• We think the good news is already in the CAD price, with risk/reward setting up for an eventual return to the USDCAD YTD highs. We have entered a  long position  and note daily uptrend support near 1.3050 should be formidable.
• We remain (very) cautiously optimistic on cable ahead of  Thursday’s  Brexit “white paper”. A daily close below 1.3205 would have us revisit our view, but we think dip buying could be rewarded. A move higher from here could target a test of 1.3472.”

Meanwhile, analysts at Westpac explained their outlook for the day’s next key events coming up:

• “At  10:30am  Syd/8:30am Sing/HK we see the Australia July consumer sentiment survey from Westpac and the Melbourne Institute. The survey was conducted 2-7 July. The headline index has hovered around 102 for the past 3 months, slightly on the positive side of the ledger after spending most of 2017 below 100. But the consumer is notably less bullish than business, judging by the NAB survey yesterday. This fits the RBA’s longstanding commentary that household spending is a risk to the growth outlook.
• At  11:30am  Syd/9:30am Sing/HK the ABS releases Australia May housing finance approvals. Total approvals have fallen for 5 straight months, but with approvals for owner-occupied dwellings resilient – it is the investor segment that has rolled over in response to tighter lending standards. Industry data points to a fall of around 2%.  
• Bank Negara Malaysia is expected to keep its benchmark rate at 3.25%, where it has been since a hike in January.
• ECB president Draghi speaks at a statistics conference in Frankfurt. The US data calendar is limited to the largely ignored producer price index for June.
• Markets price a 95% chance of the Bank of Canada raising its overnight rate by 25bp to 1.50%, after Governor Poloz’s remarks late June that “given where the economy is, we’re in a situation where the economy will warrant higher interest rates.” There will still be plenty of interest in the statement, especially around US trade policy, which is of considerable concern to the BoC.”