Forex today: stocks up, stocks down, risks are all around

The FX space today was once again tracking the performance of Wall Street and global equities that are more volatile and determined by the ever-fickle political developments on and offshore. 

Starting out, investor's skin was back in the game on the back of signs that Trump may have softened his approach in a trade spat with China when he tweeted:

"President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!"

Wall Street was initially higher with the NASDAQ leading the show while markets get set for Facebook’s Zuckerberg to appear and apologize before Congress on Tue and Wed. The S&P 500 rallied by as much as 1.8% at one point, but late headlines that President Trump’s personal lawyer had been raided by the FBI made for a risk-off ending to an otherwise positive start for the week. The initial positive mood translated into the FX space resulted in a mixed dollar and US yields.

The US 10yr treasury yield initially rose from 2.79% to 2.81% before dropping to 2.78%. The 2yr yields moved between 2.27% and 2.29% while the Fed fund futures yields continue to price the probability of the next rate hike in June around 75-80% according to Bloomberg. The DXY was ending the session down -0.32% within the lower end of the day's range of between 89.818 - 90.273 at 89.83. 

As for other currencies, the single unit was firm after Draghi dismisses concern over equity volatility and on the back of an upbeat assessment from the ECB's annual report. EUR/USD opened around 1.2275 and chased the bid on the heels of an improved risk sentiment in markets, lifted by positive EUR/JPY flows. The euro rallied through the 10 and 21-D SMAs and to the daily cloud top. 1.2331 was the high and the price closed at 1.2315 on the pullback, a few pips below the 21-D SMA, perched in a bullish position on the charts on the back of Friday's bullish engulfing pattern.   

Sterling was rising away from the ascending daily support line and the 10-D SMA at 1.4073, helped along by the Russian sanctions and the subsequent RUB meltdown. There was also a positive economic backdrop in the UK Halifax house prices beat. The price action was making for a bull pennant defined by 1.3980-1.4225, (a continuation of the 28th Feb uptrend on the cards). The cross rebounded from a few pips below the 0.87 handle up to test the descending 50-hr SMA at 0.8721. However, the correction is minor and the outlook stays heavy on both a fundamental and technical basis. The BoE is expected to hike rates as soon as next month's meeting and daily RSI is barely recovering from bearish territory while the price remains buried under the rising support line on the daily sticks at 0.8820. 

The yen was sent lower vs the dollar initially on the trade war headlines,  testing 107.20, (cloud base and 55-DMA at 107.19.22), before the FBI headlines and the CBO budget deficit estimates sent investors into safe evens and USD/JPY rolled over to 106.62. eyes are now focussed on Xi's speech today and US CPI on Wednesday as the next key events for the pair. 

As for the higher beta circuit, commodities were hanging in there despite trade tensions and copper was helping the case for Aussie bulls defending pressures on the rising support line on the daily sticks at 0.7670.  AUD/USD recovered from London's low of 0.7652 and made a high of 0.7711 on the back of a weak dollar and a rally in risk. However, the outperformer was the Kiwi that climbed from 0.7280 to 0.7324 and to the best levels since 15 March. 

Key notes from US session:

Wallstreet erases gains as Trump gets ready to retaliate military

Fundamental and political wrap: ECB and trade wars in focus

Key events ahead:

Analysts at Westpac highlighted the key events ahead as follows:

"At 11:30am Syd/9:30am Sing/HK we see the March Australia business confidence survey from NAB. The February reading on business conditions was stunningly strong, the +21 net balance a high since at least the 1990s and a long way north of the 20 year average of +5.9. Taken at face value, this implies strong business activity in Q1. The confidence index was not so remarkable in February, slipping a little to +9, versus a +5 long term average. This month’s survey will include any reaction to the scaling up of US protectionist trade policy."

"China president Xi is due to speak to the Boao Forum which has the theme "An Open and Innovative Asia for a World of Greater Prosperity". President Xi is expected to deliver the keynote address from 11:30am Syd/9:30am local time. State-owned Xinhua approvingly quoted Bloomberg’s preview which said Xi would assure foreign investors that “U.S. protectionism won't produce the same in the world's second-largest economy.” So this could help ease some concerns over US-China trade."