Forex today: EUR/USD bears and dollar bulls frustrated, EMs in turmoil, commodity-FX on its knees
- Forex today was seeing critical levels across the board being broken, tested and teased.
- The greenback as higher and tested the 95.70 resistance which is located at the top of the RHS H&S.
The DXY failed to hold onto the highs and actually retreated by some margin, falling back to 95.40 despite a strong data beat in ISM manufacturing and plenty of concern over EMs and risks associated to global trade relations and the lack of progress with respect to NAFTA and a resolve to the US/China trade dispute.
The dollar did ease back as risk seemed to pick up as NY really got going - although that was based on the ISM manufacturing number so seems a little counter-intuitive. Gold bounced and the euro recovered as a result - perhaps big boys getting involved and protecting EUR/USD at the swing low - anyone's guess really. EUR/JPY was also a factor, rallying while the yen and CHF gave up some ground and handed over the safe haven stick to the greenback.
The dollar is expected to remain firm, especially with that surprise beat in the manufacturing data, ( best showing in 14 years,), that contributed to a steepening of the yield curve and painting a more optimistic outlook for the US economy into 2019 and raising the stakes for further Fed hikes next year - if markets price in the US economy's growth trajectory, that could put some tail-wind in the curve. It also makes for a positive foundation for this week's nonfarm payrolls report and should the year-long downtrend in the curve look to change course, its all best on the table for a higher greenback with bulls targetting 97 before the year is out. That is bad news for euro bulls.
Currency action
Speaking of which, EUR/USD was hit hard in a move that started out in European trade on a widening of the EU/US spread, EM sell-off, Italian budget concerns and due to ongoing trade war angst. EUR/USD broke below some key levels and was on very thin ice at some stage when the ISM data sent it all the way down to 1.1530 swing low. However, EUR/JPY picked up, stocks rallied and the dollar gave background enabling bulls to make back some territory to 1.1580/85. EUR/USD close around there in NY and traders will now await the EZ August Markit service PMI & July sales - weakness there should hammer the nail in the coffin for the short-term trapped bulls. Sterling bulls are having a hard time of things lately due to ongoing Brexit angst. Cable was also suffering in European trade due to the worse than expected UK August construction PMI - It dropped to 1.2815 on that. However, the pair picked up with some give back in the dollar in NY and was resting at the highs for the day when there was talk of Carney staying at the BoE. GBP/USD closed at 1.2853. The cross ended the North American session at 0.9003 and was down -0.25% within the 0.9027-0.8990 range. the U.S./German 10-year yield spread widening in European rade was the catalyst for euro weakness as it widened to only 7bp from the widest since 1990. USD/JPY was helped along in with the Nikkei futures on the rise, highlighting a reduction in risk aversion but continued to perform well in NY despite the risk-off mood with US stocks opening lower and ending lower for the first day in September's trade. The pair has climbed from 110.80 end of August lows to a high of 111.53, (scored in Europe) and ended NY at 111.36 - 111.51 was the session high. As for the commodity sector, industrials were the worst off and higher beta FX was terrible. Metals were weighing heavily on the Aussie as did the EM sell-off (ZAR and Brazilian real worst performers ). USD/CNH isn't helping either. AUD/USD dropped from 0.7235 to a low of 0.7157 in Europe and couldn't get off the floor in NY, closing at 0.7173.
Key notes from US session
- ISM manufacturing index big beat and GDP tracking update - Nomura
- Wall Street retraces early losses to end the day slightly lower
Key events ahead:
- When is the Aussie GDP, and how could it affect the AUD/USD?