Soured risk tone improves slightly in New York
Forex today was starting out negative after a poor start in Asia that followed through into European markets. NY was slightly better and indeed the benchmarks managed a decent turnaround late n the NY session.
All ears were on the ground for an agreement within German Chancellor Merkel’s coalition government, whereby weekend reports had interior minister Seehofer threatening to resign over migration policy. That agreement came halfway through the NY session and risk bounced on the headlines whereby Merkel’s leadership is safe for the time being. EUR/USD recovered to1.1645, although was down from Friday's close by -0.4%.
All in all, the bear pressures persist but a short squeeze cannot be ruled out considering the build-up of shorts over the last couple of months. However, EUR/JPY was a weight early doors before a late correction that helped the bulls along. EUR/USD was trading below the 10-D SMA following European markets selling into Asian strength where DE-US spreads & German political concerns weighed the pair down. Sterling was ending the NY shift at 1.3126 -0.61%, within a NY range of 1.3163-1.3095 and was weighed by political concerns where Brexit remain a dominant theme as uncertainties keep the bulls at bay. Cable was also pressured by the broad-based strength in the greenback, dropping as much as 1 cent to 1.3100 before trimming losses to 1.3140 on a wider day's range. As for the cross, EUR/GBP was lower by -0.61% ending the North American session at 0.8854, recovering from the 0.8834 lows in early NY but down from 0.8868 European highs. USD/JPY ended flat overall, but was perky and threatening around 110.90 where US rates underpinned the upside in the dollar and dips were a bargain on the back of the US manufacturing data; (US June ISM manufacturing index 60.2 vs 58.5 expected, Markit US June manufacturing PMI 55.4 vs 54.7 expected). The US 10yr treasury yield initially dropped from 2.86% to 2.82% in London before bouncing to 2.87%on the US ISM. The Fed fund futures yields continue to price in 1 ½ more hikes in 2018.
As for commodity-FX, the antipodeans were the worst performers as vulnerable to a macro slowdown where China continues to concern. Copper and iron ore are also on their knees, weighing on the Aussie, (copper broke neckline of the year-long top pattern). For AUD/USD, the Asia gains were offset and the pair dropped back below the 10-D SMA as technicals lean bearish, (daily RSI on thin ice around 30). 0.7311 traded as an 18-month low before bulls committed and took the pair back to 0.7340 in a drift when Wall Street bounced. As for the bird, NZD/USD was the worst perform entering NY, falling from 0.6780 to 0.6690 and making a fresh two-year low.
Key notes from US session:
---Wall Street ends choppy day modestly higher
---Germany's Seehofer: We have a clear solution to stopping illegal immigration at the German-Austrian border
Key events ahead in Asia/London:
Analysts at Westpac offered a breakdown of the key events coming up as follows: "At 2:30pm Syd/12:30pm Sing/HK, the RBA seems certain to keep its cash rate at 1.5% (markets price 0% chance of a move). But there will be interest in the statement, on factors including the ongoing fall in house prices and the pressure on mortgage rates from the rise in banks’ funding costs. The language on inflation should be unchanged, waiting for the Q2 CPI data on 25 July.
At 11:30am Syd/9:30am Sing/HK we see Australia May building approvals data. The headline number is very prone to volatility, as it is buffeted by swings in approvals of high rise developments. Westpac looks for -4% in May, after -5% in Apr, given the accelerating decline in construction-related finance approvals in recent months. The median forecast is 0.0% m/m but the range is wide, from Westpac’s -4% to +5%.
South Korea releases Jun CPI data, expected to remain low, around 1.3%yr on the core measure.
The twice-monthly dairy auction takes place in London trade, with only mild risk for the kiwi. Futures price a 1% fall in whole milk powder prices."