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Rally In Short End Rates Having More Moderate USD Impact

FOREX
  • Despite US two-year yields falling as much as 16bps on Thursday following the release of softer US data, the impact on the US Dollar has been more measured, potentially offset by the weakness across equity markets. The USD index is currently showing declines of around 0.45% as we approach Friday’s APAC crossover, a move that only partially retraces the 1.5% rally from Tuesday’s open before Fed Chair Powell made his remarks.
  • Understandably, given the sensitivity to yield differentials, the Japanese yen is the best performer in today’s session. USDJPY is once again attempting to breach the 136 handle, narrowing the gap with session lows at 135.95. Ahead of tomorrow’s US employment data, attention will be on initial firm support at 135.37, before the 20-day EMA that currently intersects at 135.04.
  • With equities extending intra-day weakness in recent trade, antipodean currencies sit relatively softer in the G10 space, posting just moderate gains amid the broad greenback decline.
  • Notably, the Chinese Yuan is also weaker on the day following the much lower-than-expected February CPI release (1.0% vs. Exp. 1.9%) overnight, reinforcing the importance of PBoC policy for H1.
  • EURUSD price action has remained dull, with the pair eventually breaching yesterday’s narrow range to the topside in a slow grinding fashion. Market participants will have their attention on 1.0533, of which a sustained break would confirm a resumption of the downtrend and open 1.0484, the Jan 6 low and a key support.
  • A packed docket on Friday with the BOJ decision kicking us off. Final German CPI and UK GDP highlight the European calendar before both US and Canada employment reports.
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