Forex today: VIX all over the place, stocks correcting, dollar fickle, what next?

The markets were still sending safe-haven flows into the greenback in Forex today where margin calls demanded dollar settlements in other asset classes while the CHF and yen also picked up some demand also while the VIX started to steady after trading above 50 briefly before falling to a low of 22.4.
 
The stock market rout was partially turned around while the Dow opened down 500 points before heading higher by 900pts only to correct and close back towards the open. Treasury yields were higher again while the USD declined later in the NY session against most in the G10 with the Atlanta Fed reducing its forecast for GDP Q1 grown from 5.45 to 4%, (less inflationary then?). However, commodity prices remaining on the backfoot with the CRB -0.3%.

As for the other currencies, EUR/USD was helped along today by the backdrop in the positive EZ data with German Factory Orders and Construction PMI beating estimates well. The single currency opened near 1.2410 in the US session before traders continued to liquidate positions and meet margin calls elsewhere denominated in dollars making for a strong greenback at the start of the day. The yen was also better bid and the euro was pressured by the cross sending EUR/USD below 1.2315. Stocks corrected and risk bounced, allowing the euro to rally towards 1.2405 in the afternoon while the DXY dropped to session lows around 89.50. German December industrial output is a data risk for Wednesday.

GBP/USD was unable to get through the key 1.40 handle with continued risk aversion leaving the pound exposed and the dollar on the front foot in early NY. With a lack of domestic drivers, cable ended the NY session at 1.3950 within a range of between 1.3838/79 with the VIX all over the shop and the market fickle in the pound reversing the European losses as the dollar weakened off in the NY afternoon. Sterling was simply subject to the broader market volatility while traders sit tight with Carney in focus as BoE meets on Thursday, (Futures point towards 50% odds for a hike in May).

EUR/GBP was subject to the volatility in the stock market rout once again with some positive focus coming from progress in the German coalition talks that are looking more positive in terms of the formation of a Grand Coalition (CDU/CSU and SPD). 0.8910 was scored early doors before a sell-off to 0.8869, breaking down the 21-hr SMA and supported by the 10-4hr SMA.

USD/JPY was a complicated mix of fundamentals in Tuesday with being correlated to vol and the stock market rout while supported by the N225 & S&Ps finding support at their 200-DMAs. However, bulls were capped on the 109 handle at 109.65 offers and falling well shy of anything convincing bid-wise before the 21-DMA at 110.18. However, the downside is limited with a recovery in stocks and yields take some time out also. USD/JPY was capped by the 4-hr 21SMA at 109.63 and recovered from 108.45.

As for the antipodeans,  the kiwi was a top performer after it opened around 0.7325 with Europeans bidding up the bird after the bear pressure in Asia with NZD/JPY a weight due to risk-off flows. Support came in below 0.7270 when the yen weakened off and after the dairy prices drove in demand. GDT Price Index was +5.9% and WMP were up +7.6%  allowing for a close around 0.7315. The jobs data has propelled the bird to challenge the 10-D SMA.

AUD/USD was initially sent towards the Asian lows on AUD/JPY flows and risk sentiment that was not favourable to the commodity sector. However,  risk rebounded and AUD/JPY picked up a bid to 86.50 sending the Aussie towards 0.7895 from 0.7837 lows. AUD/USD then went on to pierce the 0.79 handle in the early Asia handover while China trade data will be eyed on Wed.

Key events in US 

Wall Street trims half of Monday's losses, bulls still in cautious mode