Forex today: improved risk sentiment, dollar, yields and stocks higher

Forex today was lead by optimism in the equities despite a focus on President Trump's tariff plan. There is resistance from within his own party to such plans and that is fueling some doubt over whether any of this will actually go through. Speaker Paul Ryan is not supporting the plans and Congress would likely try to block the tariffs. 

Elsewhere, the Italian elections, NAFTA talks, Brexit and news of the German's finally achieving an agreement to form a coalition party were making headlines and a catalyst for some price action. As far as data went, and ahead of this week's nonfarm payrolls showdown, all in all, it was a positive day on that front with the Feb US ISM services sector survey held near 13-year highs at 59.5, better than expected. 

The dollar found some demand on the back of US yields with the 10yr treasury yield moving up from 2.82% to 2.89%. The Fed fund futures are still pricing in three more hikes by end-2018 and a further hike in 2019. DXY traded in a range between 89.833 - 90.216, finishing up 0.16% for the day.

As for the euro, it started off in European trade on the back foot due to the outcome of the weekend's Italian elections where there was no outright winner and a strong show for the populist parties, so forming a new government will now be complicated.  EUR/USD dropped to 1.2269 in Europe's AM before picking up a bid to 1.2330 in late NY and ending flat for the day - ( a Merkel-led coalition government was finally confirmed and was a positive for the euro).

GBP/USD was continuing its recovery from 1.3711 recent lows and moved north from 1.3767 to 1.3835 after UK svcs PMI beat. For the NY session, cable was making a high of 1.3877 on the back of PM May's, "close to agreement on Brexit transition,” comment before easing back under 1.3840.

Having been capped at the top of its 5-month channel at 0.8950, EUR/GBP ended NY at 0.8904 within a range of between 0.8885-0.8951 and weighed by the Italian election result.  The cross was wearing the most pain as the NY session got going mid-morning falling from 0.8919 to 0.8884.

On a risk positive session, USD/JPY was able to break through the 106 level with receding US trade war angst while rebounding US stock prices lead to an exit of the yen.For the pair, the week gets crucial with the BoJ and nonfarm payrolls on Friday. There is a strong level of demand at 105.00 while there is room to run to 106.50/00 ahead of the key events as potential barriers before traders wish to be too positioned one way or the other ahead of the US jobs report. 

As for the antipodeans, AUD/USD was weighed by lower commodities and dropped to  0.7726 before rebounding to 0.7760 and ending flat for the session in NY while traders get set for retails sales and the RBA later in Asia where the bank is expected to remain on hold at 1.5% where traders will look to the statement for a catalyst instead. NZD/USD similarly bounced off 0.7203 to 0.7225/30. 

Key notes from US session:

Funda and political wrap: from Brexit, NAFTA, Italian elections to trade wars

Key events ahead:

Analysts at Westpac explained the next key events as follows:

"Australia’s busy data week continues at 11:30am Syd/Mel with two more inputs to tomorrow’s Q4 GDP report plus Jan retail sales. Retail turnover has been choppy lately, with the 1.3% m/m surge in November at least in part to the iPhone X launch and increased success of Black Friday sales inspired by the US. December saw partial payback, with a 0.5% fall. Westpac looks for a 0.5% gain in Jan; consensus is 0.4%.

Q4 Australia balance of payments should see a wider current account deficit as the trade position slipped from surplus to deficit. The GDP implications come from net exports contribution to growth, where we look for -0.6 percentage points, with import volumes up and exports stumbling.

Public demand jumped 1.5% in Q3, boosted by a 7% surge in public investment. Westpac looks for a more muted 0.6% in Q4. These two releases are therefore not likely to be much help in keeping our GDP forecast at 0.5% q/q, after yesterday’s soft inventories and company profits data pointed to risks of GDP growth printing below 0.5%.

The RBA has made clear that its cash rate will not move from 1.5% near term so the market interest in its monthly meeting is limited to the wording of the statement (2:30pmSyd/Mel). Even this seems unlikely to inspire markets, with no data on CPI or GDP between meetings.

In Asia we will see Feb CPI data in South Korea and the Philippines. The US data calendar is limited to Jan factory orders which plug into the revised durable goods orders data – no market impact likely."