Forex today saw the greenback trade in a sideways manner against the basket of major currencies, having faded the spike to seven-week highs yesterday, tracking the drop in the treasury yields.
The dollar index (DXY) was flat lined in Asia around 95.60. The index created a bearish pinbar yesterday, as it failed again to hold above 96.04 (50% Fib R of Jan 2017 high/Feb. 2018 low) and closed at 95.64. Further, the EUR/USD created a long-tailed doji candle yesterday and a close today above 1.1503 would confirm a bullish reversal.
Meanwhile, the US 10-year treasury yield fell close to six basis points to 3.19 yesterday and traded at 3.21 percent in Asia. Clearly, the greenback is showing signs of topping.
However, Chinese yuan – also an anchor currency – remained on the defensive in Asia. The People’s Bank of China (PBOC) set the CNY reference rate at 6.9072 – the weakest level since March 15, 2017 – and well above the Reuters’ estimate of 6.9009.
As a result, the offshore yuan exchange rate or USD/CNH bounced off the ascending 5-day exponential moving average (EMA), bolstering the bullish setup and rose to a session high of 6.9261.
Looking forward, the EUR/USD could rise toward 1.1550 (Oct. 5 high), if the Italian bond yields drop, signaling an easing concern about Italy’s fiscal health. Meanwhile, the GBP/USD pair is looking north, having witnessed a bull flag breakout on Oct. 5 and charted a bullish outside-day candle yesterday. The bullish case would strength if the UK GDP, manufacturing production and trade balance numbers beat paint a positive picture of the economy.
However, the greenback may pick up a strong bid, invalidating the bullish setup in the EUR/USD and GBP/USD, if the yuan’s sell-off toward 7 per dollar gathers steam. Further, an above-forecast US producer price index (PPI) could boost treasury yields and the US dollar.
Key headlines in Asia
- New Zealand’s Robertson: Prudent to run surpluses, pay down debt
- China’s yuan to trim losses on hopes trade risks will subside – Reuters Poll
- NZ: Retail spending on electronic cards increased 1.1% in September – ANZ
- Global debt is growing – IMF
- Fed’s Williams repeats expectation for further gradual rate hikes
- UK PPM May to force a Brexit compromise at home – The UK Times
- Trump to increase ethanol use in petrol to appease farmers, shuns oil producers – Reuters
Economic data in Europe (GMT)
- 08:30 UK Aug GDP Estimate
- 08:30 UK Aug Industrial Output
- 08:30 UK Aug Manufacturing Output
- 08:30 UK Aug Goods Trade Balance
Looking Ahead – Events, Auctions, Other Releases (GMT)
- 09:10 BoE’s Andy Haldane speaks at the Advisory, Conciliation and Arbitration Service Future of Work Conference in London
- 16:15 Fed Chicago’s Evans speaks on current economic conditions and monetary policy in Flint, Michigan
- 21:00 Fed Atlanta’s Bostic participates in a discussion at the National Association of Corporate Directors in Atlanta
- N/A Riksbank’s Ohlsson discusses current monetary policy and the economic situation in Gothenburg
What’s brewing in the majors?
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