Daily FX Wrap: Calm across the board as the modest USD recovery stalls quickly. Trump inauguration ahead deters. GBP relief fizzles out.
A very quiet day in the FX markets, Tuesday’s furore over PM May’s Brexit speech having played out with cable topping out just above 1.2400 to keep the early year highs intact. We saw fresh downside here dipping below 1.2300, but this was in line with a broader USD comeback, and as we have anticipated, USD dip buyers will be coming at these levels as UST yields are unlikely to fall much further given the 2-3 rate hike path indicated by the FOMC.
USD/JPY is perhaps the more vulnerable, alongside USD/CHF, as equity markets will be looking to president elect Trump to eventually reveal details of his fiscal spending plans once the inauguration is out of the way on Friday.
Ahead of this we have the ECB meeting to contend with, and despite the overwhelming yield differentials and political risk in the Eurozone, potential taper-talk deters sellers from stepping in here just yet – parity still viewed on the longer term horizon. This points to a mixed picture for EUR/GBP, but ahead of .9000, there looks to be strong resistance, as the current UK data series remains healthy enough to cap the cross rate for now, despite Brexit concerns.
Earlier today, UK earnings rose a touch to 2.7% with the claimant count falling 10.1k in Dec. US data saw inflation coming in as expected, with the yoy rate rising from 1.7% to 2.1%.
The BoC held policy unchanged as widely expected, citing damp inflation based on the fall in food prices. There is was minimal impact on the CAD, holding firmly inside a 1.3000-1.3200 range despite some erratic trade in Oil – to the downside. AUD and NZD continue to push north, with the positive AUD correlation with Gold currently n play.
The recent AUD/USD move has removed a large chunk of selling interest above .7500, and looks set to continue a slow grind higher towards .7625 initially. The next key NZD/USD level comes in just shy of .7250, but sellers ahead of this are showing their hand. Watch out for Yellen comments late on in the North American session ahead – speaking at the Commonwealth Club in SF.