Forex today: DXY -0.3%, politics dominated the currency market, key levels tested within ranges
- Politics dominates the FX space.
- Wall Street drops on political risk.
- Yen catches a strong bid to test bull's commitments on the 113 handle.
- US yields drop as bonds squeezed in risk-off.
Forex today was again dominated by politics and even the FBI was creeping back in to disrupt the Trump administration's progress in terms of reform and how the market is perceiving the GOP's work to date.
US rates and the US dollar were whacked as a result of a number of concerns that included the speculation that Powell will be selected by Trump and announced on the 3rd as the chosen candidate for the next Fed chair, replacing Yellen on the 3rd Feb 2018. The phase-in headline around corporation tax of 20% was an additional concern that hit stocks as well: The Dow Jones Industrial Average dropped 85.82 points, or 0.37%, to 23,348.37, the S&P 500 fell 8.38 points, or 0.33%, to 2,572.69 and the Nasdaq Composite lost 2.29 points, or 0.03%, to 6,698.98.
The FBI charges against former campaign staff, George Papadopoulos, who the FBI said "falsely described his interactions with a certain foreign contact who discussed 'dirt' related to emails" concerning Democratic presidential candidate Hillary Clinton hit the dollar as well. As a result of the broader risk factor to US assets, bonds were squeezed in a flight to safety bid and the yen took off.US 10yr treasury yields fell from 2.41% to 2.37% and the 2yr yields from 1.60% to 1.57%. Fed fund futures yields were still pricing the chance of a December rate hike at 96%. The US dollar index is down 0.3%.
As for the other currencies, EUR/USD rose from 1.1600 to 1.1646, with the German CPI miss keeping the theme of diverging US-Euro policies alive and capping the rally. USD/JPY dropped from 113.80 to 113.03, a move that will be challenging the bull's commitments on mounting fragility in the bullish case for the pair. GBP/USD took on the handle of 1.32 from 1.3161 and the cross rallied from 0.8793 to 0.8825, a move that might be extended in month-end flows with familiar big names such as Bundesbank buying EUR/GBP. For GBP/USD bulls, Bundesbank usually offers better positions to get long within a bullish set up and this week has the BoE expected to hike rates - "The neutral positioning in the GBP reflected in last week’s IMM data suggest that the GBP would also benefit from a rate increase, even a well-telegraphed one," suggested analysts at Scotiabank.
As for the antipodeans, AUD ranged sideways between 0.7656 and 0.7688. while the kiwi bounced off 0.6833 to 0.6876. while there was an unwinding of the carry, the commodity bloc was supported to some extent with a bid in oil at YTD highs on news that the Saudis and Russians favour extending the output deal beyond March.
Key events in Asia
Curtsey of analysts at Westpac: "NZ: Building permits should decline in Sep after a sharp rise in apartment consents in Aug. Business confidence (ANZ) is likely to reflect uncertainty during the post-election period.
Australia: Sep private sector credit is seen to lift 0.5%. The expected solid outcome reflects robust business credit and a gradual slowing in housing credit.
Japan: Sep jobless rate and industrial production are released. Unemployment is expected to hold at 2.8% but production drops 1.5% in the month.
China: Oct official PMIs are out. Momentum is seen to continue with manufacturing expected to come in at 52.2 from 52.4, while non-manufacturing was last at a strong level, 55.4."
Key notes from the US session
- Market wrap: politics weighs on dollar and US yields - Westpac
- Manafort, Gates plead not guilty to charges in Russia probe - Reuters
- US Dollar tumbles below mid-94s on news of gradual implementation of tax cuts
- All eyes on EU and US yields - Scotiabank
- Eurozone Super Tuesday: four things to look out for - ING
- US: Personal consumption surged in September while income continued to disappoint - Wells Fargo
- WH Official: Trump expected to announce his choice for Fed chair on Thursday - Reuters
- Papadopoulos, former Trump foreign policy advise, pleaded guilty in Mueller probe - BBG
- Atlanta Fed: GDPNow model forecast for real GDP growth in Q3 at 2.9%
- Dallas Fed: Growth in Texas manufacturing activity gains momentum