Forex today: dollar mixed as some majors rally on short covering and political headlines

• Forex today was centred around rising yields which played havoc on EM-FX high-betas and equity markets.
• The DXY was flat overall but lower vs the yen euro and sterling which is keeping a lid on recent rallies onto the 96 handle while remaining below the 2018 highs.  

Short covering played out on Thursday with positions pared back ahead of what is expected to be a very healthy non-farm payrolls event on Friday following the ADP report and strong ISM services data.  

EUR/USD managed a bid back tot he 1.15 handle as US yields fell back. EUR/USD made a high of 1.1542, (daily cloud and 55hr SMA confluence), with a long stick as supply emerged forcing the pair back to test the 1.1490 zone where bulls stepped in to protect the downside. EUR/JPY was a dominating factor with the yen spiking with risk appetite souring – The cross hit a low of 130.74 while USD/JPY touched the rising trend line support at 113.64, falling from 114.37 highs.  

Cable was on the bid, rallying from the Powell comments lows at 1.2922 and it hit a high of 1.3042 before fading back to the 100-hr SMA and R1 confluence at 1.3001. apart from short covering influencing the rally, there was some optimism over the Irish border sticking point in the Brexit negotiations. Reports suggest Theresa May is inching towards a compromise on the Irish border issue and bulls are looking for this to finally break the deadlock. However, the question is whether it will appease the EU or even the DUP and Conservative Brexiteers. GBP/USD ended the US session at 1.3020 having travelled within a North American range of between  1.3041-1.2922. EUR/GBP subsequently closed the day at 0.8838  and down 0.39%, having traded between 0.8861-0.8835. The flows was pretty much all one way due to Brexit headlines and domestic simmering political angst due to lingering concerns over Italy, Greece and the banking sector. USD/JPY has a bit more going on with respect to  EM-FX, China’s economic performances and yields on the rise in developed markets. However, for the latter, the pair remains in an uptrend with the dollar falling back in favour and the consensus is for a solid nonfarm payrolls report. On such an outcome, the 115 target stays in focus. As for the Aussie, AUD/JPY is pressuring and keeps AUD/USD rallies in check as the pair consolidates above S1 for now. Retails sales os on tap for today as the major risk event ahead of Friday’s nonfarm payrolls. Eyes will stay on USD/CNH and EM-FX and investors prepare for the return of Chinse markets next week.  

Key notes from overnight:

• Wall Street closes sharply lower dragged by technology
• EU’s Barnier: In final stage of negotiations & working hand-in-hand with Irish government

Key events ahead:

AUD Retail sales for Jul were flat, and we look for a modest pickup to +0.2%/m in August in line with buoyant confidence, solid employment and RBA liaison saying retail conditions were around trend (mkt +0.3% but a wide range of flat to +0.7%/m). A short while later Alex Heath, head of RBA economic analysis, speaks at a Biannual Business Education Analytics event, unlikely to influence markets.