Forex today: risk sentiment bounces back and dollar stays firm

Forex today saw a mixed dollar as the euro continued to unwind as markets weigh up the reflation trade, (DXY range 89.849 - 90.275, (towards neckline resistance at 90.50-60, +0.15 at time of writing at 90.1880), while trade war angst was also diminishing on recent and more positive NAFTA / plus China headlines this week. 

However, while FX shows less concern, equities did not get off to a good start within its correction, keeping an air of caution over an otherwise risk-recovering space. However, the mood picked up from the hourly support, in the case of the S&P, to challenge the descending 100-HR SMA - (benchmarks ended positively and higher for the day, partly helped by US officials downplaying the chances of action against Amazon.). 

As far as yields go, both European and the US pushed marginally higher. The US 10yr treasury yield climbed from 2.74% to 2.79% while the 2yrs  picked up from 2.26% to 2.29%. Fed fund futures price in two further rate hikes by the end of 2018, (June is a 78% chance).

Meanwhile, the single currency unwind continued with EUR/USD dropping to 1.2255 on the handover and a sideways chop from there on between 1.2275 and 1.2253 - (Eurozone factory boom stumbled again in March but growth solid, 58.2 58.4 - German Manufacturing PMI / German Retail Sales weaker than expected at 0.7% Feb vs 0.8% m/m exp, 1.3% Feb vs 2.2% m/m exp).  A move lower would be testing the trendline support at 1.2230-40 that looks vulnerable given the long side's cost of carry. 

The pound was up and continuing to rise within the end of March's business corrective channel from 1.4010, helped along by the UK manufacturing PMI beat where 1.4089 was met (albeit before a late-day slide in European trade sent cable back to 1.4020 support where late London/NY bulls piled back in to 1.4077 NY am high UK manufacturing PMI at 55.1 for March, was a beat vs 54.5 f/c, but was still a 1-year low). Meanwhile, after a chop over the day, GBP/USD finished up around 1.4050. 
 
The EUR/GBP cross traded between a relatively tight range of 0.8750/76 the previous day, to slide below the day's support and extend the downside on Tuesday, making a low of 0.8712 in early NY. The toss up between UK and EZ PMI made for the slide is another set back in the 22nd March's recovery attempt. (the EZ PMI was, in fact, the weakest since July 2017 at 56.6 vs December's 60.6).

USD/JPY was pulled up on a recovery attempt and from when cool water was thrown over the recent Amazon noise and the trade war angst in general with an improved risk-on environment. The yen had been beaten down to 106.19 by some 50 pips or so since the previous US session's double bottom low before USD/JPY extended to a high of 106.66 for NY as stocks recovered sharply towards the close with the hourly 100 SMA and 4hr 21 SMA both pierced in the S&P.

As for the higher betas,  the CAD did the best on the back of, well, nothing concrete really, but, there has been positive NAFTA sentiment driving risk higher in the related sectors, with USD/CAD dropping below the H&S neckline at 1.2800, (1.2780 printed, before a bounce back to neckline). Meanwhile, the Aussie bear's stumbled ahead of a key fibo area, (76.4% of Dec-Jan rally at 0.7651) after the RBA Commodity Price SDR disappointment in th previous day (-2.1%, and is considered as an early indicator of export price changes,( (CRB Index sits on key trend support)), as well as a non-eventful RBA where the market's base case for the next rate hike is not until towards the year-end.

Key events ahead:

Analysts at Westpac offered their outlook key events coming up in Asia:

"At 11:30am Syd/9:30am Sing/HK we see Feb data on Australia retail trade and building approvals. At 11:30am Syd/9:30am Sing/HK we see Feb data on Australia retail trade and building approvals. Retail spending has been volatile in recent months but Jan’s muted 0.1% m/m gain left annual growth at only 2.1%. We look for a better reading in Feb, up 0.4%. Note that the survey should include Amazon Australia’s sales.

Building approvals were reported to have soared 17.1% in January but given the impact of high rise developments and such a strong seasonal factor, the +12%yr pace is a more helpful guide. Consensus is for a -5% retracement in approvals, Westpac on -4%. AUD typically shows limited response to this report given the volatility.

In China, we will see the unofficial March services survey (PMI sponsored by Caixin), with consensus 54.5 (due 11:45am Syd/9:45am local)."

Key notes for US session:

• New York Fed appoints John Williams as next president
• Risk on: White House noise 'no ongoing talks about action on Amazon'
• Fed's Brainard: gradual increases in rates are appropriate
• AUD/USD: where next, much to consider, eyes on break of 10-D SMA?