Forex today: why can't the dollar capitalize on good news?
Forex today was the usual month-end flurry that was problematic for the dollar and positive for sterling bulls.
Despite a run of positive data, the dollar was yet again unable to capitalise on it and instead, US yields and US stocks rallied. The US 10-year yield sits at 2.4168% in the close within a range of 2.3775 - 2.4347 with the lift in PCE momentum helping push rates up on the session. The US Oct Core PCE Price Index for MM arrived at 0.2%, vs 0.2% consensus and vs 0.1% prior that was revised to 0.2% from 0.1%. For YY, the data came in at 1.4% vs 1.3% previous 1.4% that was also revised from 1.3%, all of which keeps the Fed on track for a rate hike in December. However, as analysts at ING argued, with little over one rate rise priced in for 2018, we feel markets may be underestimating the Fed's plans:
"Alongside rising inflation, we're looking for growth of around 3% next year. Throw in the hawkish rotation of regional Fed voters, which will see two dovish voters (Kashkari and Evans) replaced with two hawks (Williams and Mester), and the fact policymakers are paying increasingly close attention to rich asset prices, and we think the Fed will hike rates three times next year," the analysts at ING estimated.
Meanwhile, perhaps the dollar is subdued while markets await conviction from the GOP's tax reform plans and it seems we are not too far from an outcome with McCain backing the U.S. Senate tax bill today, boosting chances of approval. Other data had the US Weekly Initial Jobless Claims at 238k, vs 240k forecast and 239k prev 240k that was revised while US weekly Continued Jobless Claims came in at 1.957 mln vs 1.904 mln prior 1.915 mln, also revised.
As for currencies, EUR/USD opened near 1.1830 and tested 1.1880/90 resistance before a further rally on U.S. Sen Collins saying he was not committed to voting for the new plan. EUR/USD scored as high as 1.1931 before a sell-off as the DXY hardened on the U.S. Sen McCain aforementioned headline. Cable was bid on Brexit optimism again and month end sell-off in the greenback. GBP/USD rallied to a 2-month high of 1.3549, closing at 1.3520 on profit-taking. USD/JPY made a big recovery from early NY session Tillerson headline lows of 111.73 (200-H SMA support area) to 112.63 the high.
As for the commodity sector, CAD and antipodeans, the bears sold the OPEC news and WTI dropped to $56.82 from $58 before recovering back to the 57 handle for the close.
US yields pressured gold again to a 1270 spot, low for the session down from 1285 highs. USD/CAD went to 1.2909, AUD was a round trip between 0.7556, (low/closing) and 0.7594 while Kiwi bulls suffered a similar fate between 0.6830 low (0.6834 closing) and 0.6889 the high.
Key events in Asia
- AUD AiG Performance of Mfg Index (Nov)
- JPY National Consumer Price Index (YoY) (Oct)
- AUD HIA New Home Sales (MoM) (Oct)
- JPY Nikkei Manufacturing PMI (Nov)
- AUD/ CNY Caixin Manufacturing PMI (Nov)
Key notes from US session
- Russian Energy Minister: Russian oil producers are all on board for output cuts
- Atlanta Fed's GDPNow eases to 2.7% from 3.4% for Q4
- Key US core inflation measure pushes higher - ING