Hitting the ground running on Tuesday it was an interesting overnight session.
For one thing, cable decided to abruptly nosedive 48 pips in 4 minutes, testing its pivotal 55-DMA support.
“GBP/USD tumbled as much as 0.5% to 1.2421 as stops were hit below 1.2450,” a Europe-based trader told Bloomberg, adding that flows were thin overall despite a decent-sized clip having gone through in EUR/GBP, triggering stops above 0.8560.
Meanwhile, the aussie also took a dive after the RBA left rates on hold and said labor market indicators have softened recently.
“The RBA has given its strongest indication yet it’s unlikely to raise rates to cool the Melbourne and Sydney property markets,” Credit Agricole’s David Forrester said, shortly after the decision. “The board strongly implies it’s up to banks and Australian Prudential Regulation Authority to ensure financial stability with respect to bank lending to the housing market.”
Meanwhile, market jitters persisted ahead of the second French presidential debate which meant the yen was bid. Local banks added longs as the new fiscal year got under way and USDJPY was lower a third day as increased bearish momentum threatened February lows above the psychological level of 110.
Given all of the above, you can probably imagine what a chart of the broad dollar versus USDJPY looks like:
And then minutes ago we got this:
- EUR/USD DROPS BELOW 1.0643 SUPPORT; BIDS ABOVE 1.0630: TRADERS
As Bloomberg recounts, “the dollar rallied versus all of its Group-of-10 peers except the yen as risk-off sentiment gained traction with French elections firmly back in traders’ focus.”
I wouldn’t get too excited about a firmer broad dollar after yesterday. Remember, USDJPY and 10Y Yields were on the verge of pulling the rug out from beneath equities on Monday and jitters about the auto market didn’t help. The only thing that seems to have saved the day was the VIX getting hammered back to a 12-handle in afternoon trading:
Here’s SocGen’s morning take:
US car sales data don’t usually make big waves, but an underwhelming performance was enough to drive Treasury yields down again and concerns that the US economy is losing momentum have returned, putting a dampener on risk sentiment generally. The planned meeting on Friday/Saturday between Presidents Trump and Xi Jinping is cited by newswires as another reason for nervousness in Asian markets. The upshot is that the yen’s at the top of the global FX charts this morning, ahead of the dollar and then everything else, with AUD, NZD and KRW all down 0.5% against the dollar in Asia. The rand meanwhile, is down 1% overnight after S&P downgraded South Africa’s foreign currency borrowing rating to BB+ from BBB-.
It’s not obvious how the market escapes this nervous mood ahead of Friday’s payroll data, but if we end up with an even longer period of range-bound US yields then ultimately, the urge to find yield will overpower other market emotions. It’s mostly a question of biding time this week however.
There’s a certain amount of nervousness around ahead of the French presidential election too, despite opinion polls suggesting it’s a foregone conclusion. With under three weeks to go until the first round vote, Emmanuel Macron and Marine Le Pen remain comfortably ahead of the pack but a 27bp Bund yield tells us something about the mood and the OAT/Bund spread is back out to 67bp too, while the BTP/Bund spread is out at 203bp and the drop in Bund yields means that they are keeping up with Treasuries, and the Tsy/Bund spread is still comfortably above 200bp, providing Euro bulls with no encouragement yet.
Asia equities were mixed with the Nikkei hit hardest as the yen was bid while European markets were weighed down by auto stocks.
- Nikkei down 0.9% to 18,810.25
- Topix down 0.8% to 1,504.54
- Hang Seng Index up 0.6% to 24,261.48
- Shanghai Composite up 0.4% to 3,222.51
- Sensex up 1% to 29,910.22
- Australia S&P/ASX 200 down 0.3% to 5,856.55
- Kospi down 0.3% to 2,161.10
- FTSE 7305.92 23.23 0.32%
- DAX 12245.93 -11.27 -0.09%
- CAC 5081.19 -4.72 -0.09%
- IBEX 35 10304.70 -20.60 -0.20%
Gold continues to show strength on disappointing US auto sales, terrorism concerns and a generally skeptical market while oil is, well, oil.
Here’s the data docket for the US:
- 8:30am: Trade Balance, est. $44.6b deficit, prior $48.5b deficit
- 10am: Factory Orders, est. 1.0%, prior 1.2%
- 10am: Factory Orders Ex Trans, prior 0.3%
- 10am: Durable Goods Orders, est. 1.7%, prior 1.7%
- 10am: Durables Ex Transportation, prior 0.4%
- 10am: Cap Goods Orders Nondef Ex Air, prior -0.1%
- 10am: Cap Goods Ship Nondef Ex Air, prior 1.0%