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  • Forex today was more positive on the back of the easier China policy shift and the dollar was mixed, enabling a recovery in the high betas and commodity-FX.  

However, there is still some scepticism over China’s authorities considering the larger $500b tariff threat that looms and there is still a good way to go in terms of a meaningful recovery in the commodity sector. Nevertheless, the stock markets were positive on the Google earnings beating expectations and indeed the US data that impressed with the Markit PMIs offering the fastest ever price rise for goods and services leaving the bets for a 4th rate hike from the Fed in 2018 as a 70% chance.

The dollar traded between a range of 94.4000-94.8610 in the DXY while the US 10yr treasury yields cracked on in the global run higher and rose 2.95% to 2.97% – the highest since mid-June. The 2yr yields popped from 2.62% to 2.64% – the highest since 2008 while the Fed fund futures yields are pricing almost two more full hikes in 2018.  

Currency action

The single currency was ranged bound between 1.1655 and 1.1715 as traders look ahead to the US GDP on Friday and indeed the trade meeting in Washington between Juncker and Trump. The EZ data, however, was poor with the PMI’s failure to follow the stronger German PMI. The Manufacturing PMI came in at  55.1 vs 54.6 expected and 54.9 prior while the services arrived at 54.4 vs 55.0 expected and 55.2 prior leaving the euro to consolidate in the 1.1680s, down from the aforementioned highs.  

Sterling was up to test the previous session highs on upbeat PM May’s comments as Parliament go into 6 weeks of recess after      Raab said that a F=full Brexit deal with the EU by March would be a challenge. However, traders instead look to the BoE where there are higher rate hike odds according to the BOEWATCH, underpinning the pound’s recovery to double top resistance at 1.3140/50. As for the cross, the big event will be with the ECB and whether or not there will be any hints of when a rate hike might be expected, although the pound is the showman currently due to the BoE rate hike odds. EUR/GBP dropped 0.35% to 0.8892.  

USD/JPY was in consolidation in NY and traded between 110.96 and 111.45. Trump continues to jawbone the dollar but with little success as traders buy the dips below the 111 handle. The markets are buying the spread and that favours a positive dollar outcome, based on a stronger US economic recovery and the Fed hiking in divergence to the BoJ  – not expected to make any tweaks at next week’s meeting. The US GDP outcome could be a huge positive for the bulls eyeing a break back towards the midpoint of the 112 handle – 112.60 target.  For the Aussie, it ran higher but sellers keeping a lid on the bull’s appetite for a break of 0.7450, despite the optimism over China’s policy shift. The CPI data will be key for the next more but it is very clear that the RBa are in no rush to make a move given that the prior upgrade to history (+ ¼%pt from 1 ¾% to 2%/y) was all-but ignored by the RBA and the markets.

Key events in the US session:

Wall Street closes higher boosted by energy and tech

Key events in Asia:

Analysts at Westpac noted that in Australia, the Q2 CPI consensus expectations are for a 0.5% increase in the headline and core measures. “Westpac’s forecast is 0.4% for headline and 0.5% for core, another low result as falling power bills and moderating housing costs combine with the ongoing retail squeeze.”