Summary: The British Pound outperformed, rising to 2-month highs as bets increased for a soft-Brexit. Although many options remain, May’s survival removed some political uncertainty for now. Elsewhere, the Wall Street Journal reported that US Treasury Secretary Steve Mnuchin was considering lifting Chinese trade tariffs. Wall Street stocks soared to the day’s highs before easing at the close as the US Treasury denied the comments.
US Weekly Jobless Claims and the Philly Fed Manufacturing Index both beat forecasts.
The partial US government shutdown entered record territory, overtaking 1995’s 21 days.
- GBP/USD – The British Pound shrugged off Brexit blues, rallying to 2 months highs at 1.30008 before easing in early Sydney. Sterling also rallied strongly against other Rivals. The EUR/GBP cross fell to 0.8770, 2-month lows. With some of the risk associated with Brexit removed, short GBP bets against both the Dollar and other currencies are being unwound.
- AUD/USD – reversed losses after trading to an overnight low of 0.71467, rallying to 0.7220 on the talk of US easing of Chinese trade tariffs. AUD/USD eased back to 0.7193 as the US Treasury denied the talk.
- USD/JPY – The Dollar rallied to 2-week highs at 109.377 on the trade tariff easing talk before settling a touch lower at 109.18. US bond yields edged higher, further support this currency pair.
- US 10-Year Bond Yield – The benchmark 10-year yield climbed one basis point to 2.75%, this year’s high. Earlier this year, the 10-year bond yield fell to 2.55% lows.
On the Lookout: Amidst all the noise, the Dollar Index (USD/DXY) finished little-changed. The British Pound’s outperformance has resulted from the removal of some political uncertainty. Japan’s safe-haven Yen is being unwound from the flash-crash 2 weeks ago as US yields climb. The Euro is struggling to gain ground as more ECB officials (Mersch and Nowotny) highlight Euro area economic slowdown. The Australian Dollar bounced back on the US-China trade tariff reduction talk. Emerging Market currencies all saw marginal gains.
Optimism is building on US-China trade talks while the US Government shutdown enters record territory.
After a hectic week, markets will take a breather today and focus on the data releases.
Japan’s National Annual CPI and Revised Industrial Production data (December) are due first up. The UK reports on monthly Retail Sales with Canada finishing off with Headline and Core CPI.
Trading Perspective: US Bond yields rose and have climbed off their lows to 2019 highs. This should provide the Dollar with overall support for now.
- GBP/USD – The Pound rebound extended to 1.30008 highs as some of the political risk has been shaken from the currency. Sterling rose against its other Rivals too and its rally was broad-based. From here 1.3000 and 1.3030 are immediate resistance, with 1.3030 formidable. Immediate support can be found at 1.2960 and 1.2920. Prefer to sell rallies. Likely range 1.2960-1.3010.
- USD/JPY – The Dollar Yen recovery hit 109.377. Immediate resistance can be found at 109.40, followed by 109.60. A sustained break of 109.60 will see 110.00. Immediate support can be found at 108.80 and 108.50. Likely range today 108.80-109.30.
- AUD/USD – The Aussie jumped to an overnight high of 072203 from 0.7180 yesterday. Immediate resistance lies at 0.7220 followed by 0.7250. Immediate support can be found at 0.7170 and 0.7140. The optimistic trade outlook has reignited support for the Battler. Any change in that sentiment could see the Aussie grind back down. On the day we can expect a likely range of 0.7170-0.7220. Just trade the range shag on this one.
- US Ten-Year Bond Yield – The bounce from 2.55 to today’s 2.75% should slow at these levels. There is good resistance between 2.75 and 2.80% while strong support now lies at 2.65%. Any grind higher to 2.80% will give the US Dollar added support.
Happy Friday and trading all.