Forex today: euro and EM’s roll over, dollar and yields climb, Kiwi poor performer

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Forex today saw the euro roll over after an attempt in European trade towards the 1.20 handle where the 200-D SMA is located, 1.2020. 

The dollar was supported by a slight upturn in yields as the NY session turned the corner of the afternoon, weighing on the higher beta and commodity-FX, (notably the Kiwi).

The DXY ended the NY session at 92.69 within a range of between 92.2430-92.6900. The US 10yr treasury yield rose from 2.96% to 3.00%, while 2yr yields rose from 2.53% to 2.55% making for a fresh10-year high. The Fed fund futures yields continued to predict a rate hike in June as effectively certain, and an additional hike by year-end.

As for the other currencies, the euro entered the NY session at 1.1980, probing the 1.20 handle, lifted from 1.1960 overnight when ECB’s Villeroy said that bond purchases were likely to end in either Sep or Dec, with higher interest rates following “some quarters but not years” later. The dollar firmed on higher yields, sending the single currency back to 1.1960 before sinking further to just below the 1.1940 level and 10-D SMA on headlines that the Italian President was giving more time to the 5-Star and League coalition more time to work on the government deal.

GBP/USD bulls were also attempting a bid and Sterling was outperforming overnight to 1.3607 highs before NY traders walked in the door, selling the pair back to 1.3555, preferring to trade the negative Brexit headlines where the EU was warning Britain of poor Brexit progress. GBP/USD closed at 1.3557. Traders eye the UK’s UK employment & wage data for Tuesday.

The cross was ending the US session lower by 0.16% at 0.8804 having traded within a range of 0.8826-0.8801. The BoE is still played by investors over the ECB, offering a downside preference. 

USD/JPY was better bid within the double top and reverse daily head and shoulder pattern that is under development.  EUR/JPY was bid on the ECB noise and that aided the continuation of the USD/JPY from 109.42 lows before a general dollar rebound sent the pair to a high of 109.69. Traders will keep an eye on trade war headlines, (currently softened by Trump’s about-face ZTE negotiation with China) and Japanese GDP/USD retail sales tomorrow. 

As for higher-beta FX, the dollar was weighing heavily despite the momentary EM gains post US CPI last week. Oil correlated with the loonie, capping the upside at 1.2813. The bird was on its way to a break below the 0.69 handle while the Aussie was weighed by industrial metals, (copper testing below the 200-hr SMA) and gold headed for a break below the 10-D SMA and equities weighed too. AUD/USD was, for the most part, stuck to a bearish 0.7540/60 range, but bears managed a break to 0.7520 late in the session, 0.7526 close ahead of RBA minutes and the Chinese data dump, (April IP and retails sales).

Key notes from US session:

  • Funda-FX wrap: Central Bank chatter drives the euro
  • Wall Street: Dow up for 8th day in a row amid easing US-China worries

Key events ahead:

Analysts at Westpac noted that we will hear a lot from the RBA today. At 11:30am Syd/9:30am Sing/HK, it’s the minutes from the May Board meeting, but argued that more relevant for markets today is the speech by RBA deputy governor Debelle, on the outlook for the Australian economy, from 9:10am Sydney. “Later in the morning, Debelle speaks on interest rate benchmark reform.” Additionaly, the analysts also noted the Chinese data on tap for Asia today as follows:

“China releases its monthly activity data (Apr) at 12pm Syd/10am local time. We are most interested in the industrial production reading, given it is comparatively reliable and most relevant to Australia’s key commodity exports. Consensus is 6.4%yr after 6.0% in Mar, which was equal-slowest since Dec 2016. Also due are retail sales and fixed asset investment.”

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