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Forex today: Reflation trade lingers, although greenback took back some ground

  • Forex today was somewhat subdued, with a correction in the dollar back towards the 96 handle pulling in the reigns of the high beta complex, weighing on the Kiwi and Aussie's outlook.

The dollar was modestly higher with an uptick in US yields assisting in the upside with rates firmer due to an improvement in risk appetite, However, the Fed is sticking point on that front and the dollar is unable to get both boots out of the mud yet. In fact. futures markets are pricing in a rate cut as soon as 2020 making way for the reflation trade, which is likely going to support the Aussie, gold and not the dollar. The DXY ended around 95.90 in North American Markets. 

As for the euro, it suffered a blow with data at the core of the EZ continuing to print badly in the IP Nov miss. DE-US yield spreads widen and help weigh on EUR/USD, 1.1420 neared early and closed around 1.1436 - Eyes on ECB later this week and Powell, (Thurs GMT). Cable was hurt by a higher greenback and US rates while the Article 50 headlines did not stick. the pair ranged between 1.2777-1.2708 in NY and ended at 1.2715, -0.49% in NY.  USD/JPY was collecting bids on the downside of the European market range, with the price falling from the 109 handle early doors to a low in the 108.50s before the greenback flexed its muscles and bulls climbed back towards 109 the figure in early NY on yield spreads. The pair settled at 108.80. As for the Aussie, its randed sideways with a cluster of hourly candlesticks forming a potential corrective chart pattern and a case of the downside, at least for the very near term as the pair consolidates ahead of the key resistance in the 0.7150 area. Markets await Fed speakers later this week and US-Sino trade talks soundbites will be a key driver. AUD/USD ranged between 0.7420/50. However, in recent trade, the Aussie spiked out of the range to test the 0.7170s.

Key events in US session:

  • Wall Street higher for third straight day and bulls eye DJIA's 50% retracement Fibo of Dec's decline at 23765

Key events coming up:

Trump's speech (2100 EST / 0200 GMT)

 President Trump will make a live address regarding border security which should be worth tuning into considering the implications for a prolonged US government shutdown. The longest shutdown on record is 21 days, from late December 1995 to early January 1996.  The last thing markets need right now is the confidence of the world's largest economy stripped away. Moreover, tax refunds are at stake if the shutdown goes on for much longer, and that will hit Wall Street and the Presidents popularity. The partial shutdown has now stretched 17 days and ranks among the longest in U.S. history. Trump is rejecting any spending bill, including a package the House passed last week, that does not include more than $5 billion for his border wall on the U.S.-Mexico border.



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