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Forex today: Sterling was yet again the big mover over 'no deal' Brexit headline

Forex today saw a further bid in the greenback following Saturday’s US Senate tax reform plan passage that underpinned the upside in shorter-term US yields and US stocks, (until the close that is). The US dollar index was up 0.4% on the day while the 2yr yields remained elevated at 1.81%, making for a nine-year high. However, the ten-years were not so elevated and dropped from 2.41% to 2.38%.

Underpinning the dollar was the divergence between central bank expectations this month with the Fed around the corner, 12/13 December while we enter a 1-week blackout period as we await the Senate to vote on the nomination of Jerome Powell as Fed Chair on Tuesday. The Fed fund futures yields continued to price the chance of a December rate hike at 100% while there are a number of observers who forecast the Fed to hike three times in 2018 and once in 2019. US data also underpinned that notion again with the above-forecasted results in Factory and Durable Goods data today.

The biggest mover in the FXspace was Sterling, again, with some wild volatility in the currency. The UK and EU failed to reach a Brexit deal while a joint statement from May and Juncker who had met on Monday, lunching together, confirmed the headlines from the BBC and Reuters, not expecting a deal, that sent the pound off a cliff. However, some positives statements from both officials 

keep the Brexit hopes alive and sterling exalted ahead of the EU Summit next week (15th Dec), with UK's PM May saying following.:

"We will reconvene before the end of the week and I am also confident that we will conclude this positively," 

and Juncker was saying:

"This is not a failure, very confident will reach an agreement this week."

Sep’s 1.3659 remains in focus after reaching a 1.3539 and a low of 1.3413 on the no deal news. EUR/USD kept drifting to the downside below hourly MA's at 1.1870 and 1.1850 with a low of 1.1829, picking up a bid there into the close to reach back through the 1.1833 Cloud top and to the 21-hourly SMA at 1.1857. Despite Kuroda sounding a bit more dovish than in recent appearances, USD/JPY was capped again in the NY morning at 113.08 and the Nov 9th swing low and by the daily Cloud top, falling to a low of 112.37 with some last minute offers into the close as US tech stocks sold off, financials holding form. 

As for the commodities, dollar strength weighed on the sector with gold subdued until the closing bid trading between $1,270.89 and $1,277.35 the high.  Oil was hit on some profit taking due to the concerns of rising shale oil production and subsequently, WTI fell 1.3% to $57.60 bbls. Copper was also losing some ground. AUD/USD traded between 0.7614 and 0.7579 while ahead of Aussie retails sales and the RBA, with markets looking for a dovish tilt in the statement but no change expected. NZD/USD traded between 0.6839 and 0.6871. 

Key events coming up:

Analysts at Westpac offered their outlook for Asia's key events as follows: NZ: RBNZ Governor Spencer speaks about "low inflation". Australia: The RBA policy decision is expected to be on hold. It is unlikely that the statement will be materially changed, but a possible point of difference may be around the currency given that the AUD TWI has fallen back to near 2017 lows. Q3 National accounts partials are released. Net exports are expected to add 0.3ppts to GDP growth (Westpac +0.2ppts), with the current account deficit broadly stable at -$8.9bn (Westpac -$9.4bn). Westpac expects the public demand figure to be up 0.6% led by an upswing in investment. Oct retail sales is seen to rise 0.3% following a subdued Q3.

Key notes from US session:

  • Wall Street ends day mixed as investors digest tax bill
  • Crypto Today: Bitcoin extends gains above $11K, ether turns positive near $460
  • US: tax bill will likely be passed in Q1 2018 - Wells Fargo
  • UK: Brexit uncertainties dominating theme - Danske Bank
  • WTI drops 1.5% on Monday on heightened expectations of rising US output

 

 

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