Forex today: oil sends yields higher, dollar underpinned although commodity-FX stood out temporarily
- Mkts saw a massive rally in oil, (in part were driven by a 2.8% gain in gasoline prices - WTI rallied from $67.56 to $69.76 - CAD/Aussie and yields benefit.
- Commodities get an extra boost from positive NAFTA headlines.
- EUR/USD has been supported by flows in sterling on the Brexit headline of late.
Forex today was concentrating around a push in US yields which elevated the DXY back to 95.50, although it was a short-term stay there and the dollar soon came back under pressure, perhaps on profit-taking ahead of PPI and CPI and indeed by the massive rally in oil, (in part were driven by a 2.8% gain in gasoline prices - WTI rallied from $67.56 to $69.76), where the DXY dropped from 95.31 and drifted down to 95.03.
Of course, one of the main benefactors to the move in oil was the CAD which got an extra boost from positive NAFTA headlines where Trump came with encouraging comments saying that the US and Canada were close to a deal. USD/CAD dropped to a low of 1.3050 from 1.3174 the high.
Meanwhile, US yields have spiked, 2.9830% was printed on the 10 years and that should continue to underpin the dollar - we have the PPI and CPI data next will be key ahead of the FOMC.
Meanwhile, EUR/USD has been supported by flows in sterling on the Brexit headline of late. EUR/USD hit up a key high at 1.1643 and was sold into down to 1.1565 on the dollar's rip and also due to a wider DE-US spreads that weigh. However, the bears are making a really hard time of the downside and it appears that there is a bottom of the H&S in the making. Only a break out below 1.1500 would open risk towards 1.1200 - the fundamentals stack up for a higher dollar in the near term, but could quickly deteriorate once the Fed expectations are cemented for either two or just a one-and-done for the rest of 2018 - both outcomes will likely enable markets to focus elsewhere. However, if there are messages from the Fed that indeed there are going to be two further hikes and more to come in 2019, the dollar should remain underpinned.
- ECB Preview: Dovish Draghi set to dampen tiny tightening, EUR/USD bears are waiting
We have the ECB this week but the recent slide in inflation implies a dovish tone from Draghi - any surprises otherwise as the Central Bank provides fresh forecasts ahead of the planned QE tapering would significantly impact EUR/USD to the upside and cement the foundations for a reversal of this bearish H&S pattern that lacks conviction at this juncture - however volatility should play out and either make or break trading positions over the event. Sterling has been Cable was trading just north of 1.3050 before it slid to 1.2989 and a bad sell order was mooted as the cause. The pair stabilised thereafter and made its way back to 1.3039. Average earnings data made up for the manufacturing misses the day before - (GB Aug Claimant Count Unem Chng, 8.7k, 10.0k forecast, 6.2k prev, 10.2k revised. GB Jul ILO Unemployment Rate, 4.0%, 4.0% forecast, 4.0% prev. GB Jul Employment Change, 3k, 28k forecast, 42k prev. GB Jul Avg Wk Earnings 3M (yy), 2.6%, 2.4% forecast, 2.4% prev. GB Jul Avg Earnings (Ex-Bonus), 2.9%, 2.8% forecast, 2.7% previous).
As for EUR/GBP, the pair rallied to 0.8937 for a fresh intra-day high when GBP/USD slid to 1.2989 but then fell to a fresh five-week low of 0.8888 after UK earnings beat. The pair then drifted to a 0.8901 close for NY. The yen was dropping to 111.64 the high in USD/JPY and traders unlikely to push much higher ahead of the PPI data tonight and CPI the following day. A key target would be the 61.8% of July-Aug drop at 111.88 and the funda behind it would be in rising US yields due to oil prices. AUD/USD popped from the lows down at 0.7106, (2-year AU-US yield spreads hit new wides to help pressure the pair lower and weaker EM currencies weighed), and rallied to 0.7125 on the oil spike and NAFTA headlines. AUD/USD close in NY at 0.7113.
Key notes from US session:
Wall Street ends day higher as tech and energy rebound
Key events ahead:
AUD Similar to business confidence (easing from +7 to +4 in August) consumer confidence may pause or dip (prior 103.6) as the unexpected political rout removing PM Turnbull unfolded in August.