XE Market Analysis: Asia – Mar 30, 2017

XE Market Analysis

The dollar started the day on a stronger footing, getting a boost overall from an upgraded U.S. Q4 GDP revision. Stocks and yields moved higher, supportive of the greenback as well. Later, the dollar fell across the board, as CNBC reported that the Trump administration is assessing ways to penalize currency manipulators. Better risk taking levels though, saw the market take advantage of the brief sell-off, and the buck later rallied to session highs. After topping at 1.0753, EUR-USD printed 1.0685 lows after the London close. USD-JPY meanwhile, touched 111.00 lows, before rallying back to111.66. USD-CAD fell to eight-session lows of 1.3278 from 1.3345 highs on warmer Canadian prices data, and WTI crude’s rally to three week highs over $50/bbl. Cable bucked the trend, bouncing over 1.2520 on short covering following the official triggering of Article 50.

EUR-USD losses accelerated on the move under the earlier N.Y. low of 1.0722, trading now to a base of 1.0685. This is the lowest since March 15. Dovish leaning ECB speak this morning has weighed, along with widened Treasury/Bund spreads in favor of the dollar, with the 10-year moving out 4 basis points to 206 this morning. After failing to hold the 200-day moving average of 1.0886 on Monday, the pairing today has broken under its 20-day MA at 1.0706, and is poised to take out the 50-day MA at 1.0676.

USD-JPY recovered from the earlier “punish currency manipulators” story purportedly from the U.S. administration, as reported by CNBC. The pairing dipped to 111.00 lows, and has since topped at 111.52, just under the one-week highs of 111.54 printed early in the session after the improved U.S. GDP revision. The better risk backdrop, and firmed up Treasury yields have been supportive since then, while improving U.S. data, and generally hawkish Fedspeak should continue to put a floor under the pairing.

Cable rallied to two-day high territory, topping at 1.2524, and outperforming verus the other majors. The well-anticipated triggering of Article 50 yesterday hasn’t had much impact. Resistance is at 1.2541-42. We anticipate plenty more chop, but favour selling into any gains that reach the upper 1.20s on the basis of Brexit uncertainties and the Fed’s rate hiking path

EUR-CHF took a tumble, falling from near 1.0725 to 1.0691 lows. The move came following comments from the SNB’s Maechler, who said monetary policy must remain expansive, to guarantee price stability. He said that the recovery in in the country is not yet broad based and that the Franc remains “significantly overvalued”, which means negative rates remains necessary. In addition, a strong KOF leading indicators report supported the CHF. The cross has found support so far into the 50-day moving average of 1.0690.

USD-CAD fell to eight-session lows of 1.3305 following the mix of data, which revealed firm Canada IPPI and RMPI figures. The pairing had been on the decline earlier, as WTI crude rallied toward the key $50/bbl. USD-CAD had been trading on either side of its 20-day moving average, currently at 1.3386, though today, broke decisively below the level. The pairing later bottomed at 1.3278 as oil prices rallied to three-week highs of $50.45.

Forex today: improved risk sentiment across the board, GBP/USD worst perf…

The FX space in the US session was dominated by a positive tone around the US economy. The dollar gained traction on a number of events that included a surge in consumer confidence and hawkish Fed speakers.

The Consumer Board Consumer Confidence Index surged higher to 125.6 and beating expectations of an 114 print. The Richmond Fed manufacturing survey was also a positive. The survey rose from 17 to 22 vs the 15 expected. This date is supportive of an improved set of Chicago PMI, and ISM surveys. (11.3%) and Portland. In respect to Fed speakers, Chicago’s Fed President Charles Evans and Dallas’ Federal Reserve Bank President Robert Kaplan both advocated for further rate hikes this year. Yellen was a non-event but she did display a cautionary tone around the jobs sector noting persistently high unemployment.

DXY up by 0.6% and rise in US yields support USD/JPY on 111 handle

The US dollar rallied on the feel good vibes and was up 0.6% on the day after making multi-month lows after the healthcare bill fallout between the GOP. Stocks rallied as well and yields are back into positive territory for the dollar. The US 10yr treasury yields rallied from the lows of 2.36% to 2.42%, and 2yr yields rose from 1.25% to 1.30%. Markets continue to price in around 60% chances of a June Fed hike. The Yen triggered stops onto the 111 handle in a rally from the 110.17 lows making highs of 111.20. Sterling was under pressure domestically with Article 50 being triggered tomorrow and due to the Scottish Parliament’s backing of a second referendum. GBP/USD dropped from 1.2597 to 1.2439 meeting and breaking below the hourly 200 EMA at 1.2457. The kiwi ranged between 50 pips on the 0.70 handle while the Aussie garnered support from strength in base metals and a recovery iron ore particularly. The better risk tone enabled the Aussie to climb from 0.7587 to 0.7655 highs. 

The day ahead

Analysts at Westpac offered the event risks for the day ahead:

“US: The Fedspeak schedule is again busy. Powell speaks on the history and structure of the Fed, Evans on the economy at a capital markets conference in Frankfurt, Rosengren on the economic outlook, and Williams gives a speech titled “From Sustained Recovery to Sustainable Growth: What a Difference Four Years Makes” in New York. Feb pending home sales is out after falling 2.8% last month, which left the Index flat (+0.4%) on a yearly basis. Demand has been robust, but an insufficient amount of listings has led to a drop in contract signings.

UK: PM May is set to trigger Article 50, formally beginning the two-year exit negotiations process.”

Key events in US session: