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USD Advances, EURJPY Retraces Monday Rally

FOREX
  • With US 2-year yields consolidating above 5%, the greenback has made furtive gains on Tuesday with the USD index advancing around a quarter of a percent. However, outperformance at the long-end of the curve has propped up the Japanese yen, which has traded in a more constructive manner throughout the session.
  • EURJPY's reversal off highs has been notable, after the cross touched 159.49, the highest rate since Sept'08. The moves strengthen the importance of resistance layered in the cross at 159.21-49. A break and close above these levels is needed to resume the underlying bull trend.
  • In similar vein, EURUSD (-0.39%) trades just 20 pips above the daily lows of 1.0833, cementing the single currency's status as the poorest G10 performer Tuesday. Volumes across futures have been solid: EUR futures have seen strong participation across US hours, putting daily cumulative volumes over 30% above average around the European close - countering more muted trade on Monday. Equity markets have rolled off highs, putting the e-mini S&P through yesterday's close and into negative territory - underpinning further strength in haven FX and the greenback.
  • The New Zealand dollar is the strongest in G10, prompting a near 0.75% retracement lower for EURNZD, following an impressive 4.2% rally across August.
  • The strong early performance for equities and the positive session for metals have maintained a more supportive tone for some higher beta emerging market currencies, namely the South African Rand and the Brazilian Real, both rising around 1%. The latter has also benefitted from the headlines regarding an imminent vote in the lower house to pass the new fiscal framework.
  • New Zealand retail sales headline the docket overnight before European flash PMIs will give the latest indication of the health of Eurozone economies. Canada retail sales, US PMIs and new home sales data is also scheduled.
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