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Forex today: cautious play, dollar steady at key support, carry soft on prospects of higher global rates

There was an air of caution in Forex today, with the dollar on a knife edge despite higher rates.

The 2yr yields moved higher to yet another fresh high for the period between Oct 2008 and today, rising from 1.65% to 1.67%. US 10yr treasury yields ranged between 2.37% and 2.40% while the Fed fund futures yields continued to price the chance of a December rate hike at almost 100%. Carry FX was taking the brunt in NY while, elsewhere, sterling was the worst performer on the back of growing threats to PM May’s leadership.

Stocks are coming off the longer markets need to wait for something definitive from Congress over the GOP's tax reform but a full House vote has been scheduled for this Thursday. The DXY was testing a key support at 94.50, but ranged sideways for the most part and closed up 0.2%. EUR/USD continued to recover and is on track to start a reversal of the 1.18 handle's downtrend from 25th Oct supply. 6th Oct neck-line resistance at 1.1669 holds the bulls up, for now. GBP/USD managed to find space back onto the 1.31 handle after dropping to 1.3062 in Australian open yesterday on May's leadership concerns post The Times newspaper weekend story. The cross caught a bid from 0.8844 lows to 0.8923 the high and is stationed now above the 4hr 200 SMA at 0.8884.  USD/JPY was two-way business from 113.65 to 113.25 and back again while US stocks tried to recover. As for the antipodeans, AUD/USD dropped from 0.7665 to 0.7617 to its lowest since July while the Kiwi fell from 0.6935 to 0.6894, both currencies affected by risk of higher global rates.

Key events in Asia

Analysts at Westpac offered their outlook for the key risk events in Asia today: "Australia: Oct NAB business survey is released with conditions having held an elevated level through the year but showing uneven results across sectors. China: Oct retail sales are expected to edge up to a 10.4%yr pace, while industrial production holds at a robust 6.7%yr ytd with PMIs pointing to continued momentum, and fixed asset investment is seen to slow to 7.3%yr ytd from 7.5%yr in Sep - a deceleration Westpac expects to continue through 2018."

Key notes

  • Details on US tax reform are being ironed out - ANZ
  • BoJ's Kuroda: We expect inflation rate to reach around 2% in fiscal 2019
  • UK Brexit Sec. Davis: Cannot make new border within UK for Brexit
  • US Dollar preserves daily gains above 94.30 as US T-bond yields erase losses
  • US stocks lower at the start of a new week

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