Forex today was wild and spurred on by reports that the Trump administration is reaching out to China for a new high-level round of trade talks. The Wall Street Journal printed an article that explained this was “in an effort to give Beijing another opportunity to address U.S. concerns before it imposes new tariffs on Chinese imports, said people briefed on the matter.”
As a result, stocks actually gave back risk-on intraday gains of 0.7%, with key indices down around 0.1% towards the close. The S&P 500 ended up by just 2 points to 2889. In fixed income, the Treasury curve was modestly flatter on a 1bp move from 10s onwards – the US 10-year yields were down 1 bps to 2.96%. The CAD (+0.5%) picked up a bid on the speculation that we are getting closer to a NAFTA deal. However, and crucially, Canadian sources downplayed the likelihood of an imminent deal. Also, Larry Kudlow said the big issue on CAD Nafta talks is the milk issue – so should bring the CAD back down to earth and WTI was weakening back with a very long wick on the upside. WTI crude was up 98-cents to $70.22, closing at $69.93. Gold was also up $7 to $1206 on the day. We now await Australian employment, the BoE, and ECB that are the main risk events for Thursday.
EUR (+0.1%) was relatively muted ahead of tomorrow’s dual central bank meetings, but it was attacking the 1.1650 base of the cloud with a target set at the top of the cloud at 1.1680 on the trade headlines on the Dow Jones sources noting that the US was proposing a new round of trade talks with China. EUR/USD got through the 50-D SMA but fell short and traders reassess ahead of the ECB – because there are speculations of downward revisions to economy & inflation. As for sterling, it was up by +0.2% at the end of NY ending at 1.3068 within a range of between 1.3083-1.2980. Continued Brexit headlines support the pound. ‘The EU said to begin redrafting Irish Brexit protocol to appease UK’, which sent the pound on a rally from 1.3025 to 1.3074. This followed earlier headlines that Juncker confirmed that they aim for close ties with UK, (cable rallied to 1.3050 in European trade on that noise). As for the cross, EUR/GBP ended NY flat on the day by 0.8905 within the range of 0.8937-0.8888. The Eurozone IP disappointed for the sixth time of its seven releases this year – (IP fell 0.8% mm in July vs the -0.5% mm f/c but more importantly, IP on a yy basis also dropped 0.1%, first drop since Jan 17). Again, the BBG news suggested that the ECB will lower EZ growth outlook tomorrow so euro bulls are on guard. The yen was pretty subdued despite the action in the commodities on the trade noise. USD/JPY traded between 111.58/10 throughout Europe and the US. US yields were lower and the Beige Book was mixed, although underpinned the notion of further rate hikes from the FED. The PPi data missed but the key input will come from the CPI data – expected to remain unchanged in August – Bulls need a 111.88+close while bears need sub-100-DMA (110.60) close. As for the Aussie, it behaved as to be expected as the proxy currency of choice to what goes down in China town and EM-FX. There was a sharp rally in the Lira and CNH and AUD/USD made a high of 0.7182. The pair closed at 0.7166 in NY. It crept lower into early Asia to 0.7162 and was still higher than the lows of 0.7085 (lowest since Feb 2016). From here, there is a solid bull bar on the daily sticks, although bulls ran out of steam at the 10-D SMA. The bears look to 0.7080 key downside target.
Key notes from US session:
Dow Jones and S&P 500 close higher, Nasdaq slips on tech sell-off
Key events ahead:
When are Aussie jobs and how could they affect AUD/USD?
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