Forex today: dollar mixed, euro up to 1.2520 ahead of NFP's

Despite higher yields, the US dollar was mostly lower with the DXY dropping to fresh lows within a day's range of between 88.555 - 89.328 (heavily weighted to the euro, lowest level in more than four years).

The political environment remains a catalyst in the FX space with continued concerns over the deficit spending requirements while otherwise, traders are now focused on the forthcoming nonfarm payrolls data on Friday. 

Markets are also concerned about the resurgent inflation picture, coupled with tightness in the labour market which should be compelling in respect to the Fed's path of interest rate hikes going forward.  (30-year Treasury bond touched 3% today, its highest level since May).

The benchmark US 10yr treasury yields rose from 2.72% to 2.79% - another fresh high since April 2014, while 2yr yields ranged between 2.14% and 2.17% - the latter the highest since 2008. The Fed fund futures have priced price the chance of another rate hike in March by 100%.

The Atlanta Fed upgraded its model prediction for Q1 GDP from 4.2% to 5.4% (annualised). Otherwise, data was mixed. Markit manufacturing PMI arrived at 55.5 (vs 54.9) while the ISM manufacturing index reached 59.1 (vs 58.8).  Details of the ISM included a decline in the employment index to 54.2 from 57.2 and a slide in the new orders index to 65.4% from 67.4%.

As for other currencies, EUR/USD performed well, capped on a number of attempts through 1.2520, closing up 0.82% on the day, having posted a daily high at 1.2523 and low at 1.2385. The single currency was bid in European trade and rallied away from the 10-D SMA at 1.2368 to open the NY session at  1.2425. The EZ currency was supported by flows through EUR/JPY, although bulls were unable to keep up the pace when the optimistic Atlanta Fed's latest Q1 GDP forecast was arriving in at 5.4 vs prior 4.2%, boosting the greenback before a rerun back to 1.25 again vs the euro. Eyes will now turn to the EZ Dec PPI ahead of the US nonfarm payrolls report.

GBP/USD was choppy,  helped to 1.4275, a 6-day high, by early fix-related buying. The pair fell on the UK data with a miss in the  UK mfg PMI  to seven-month lows but was rescued by the sentiment for the BoE hiking as soon as May. GBP/USD finished up the NY session at 1.4220 between a range of  1.4261-1.4190 while otherwise, the political environment surrounding Brexit keeps the pound on tender hooks. 

EUR/GBP was recovering from the 0.8720 lows with the euro advancing and extending the freak bid to 1.2385 vs the greenback in teh European session. Cable dropped to 1.4226 in Europe and then to 1.4256 on political concerns (British minister preparing to resign and denounce PM May-Sun newspaper) enabling the cross higher and off the aforementioned lows while European PMIs were more promising, (EZ manufacturing boom extending into 2018). GBP/JPY had been am influencing the supply side in cable as well. EUR/GBP ended NY at 0.8765.

With the BoJ jawboning this week, USD/JPY climbed from 109.20 to 109.75 (Jan 26 high) and then drifted back to 109.25, little changed on the day with the Tenkan now at 109.75-77, ( an area bulls need toovercome before supply comes on heavier, especially over the NFP's). Locally, the Japanese data in January's mfg PMI  final arrived at 54.8, flash 54.4, and the highest since Feb ’14, December's of  54.0.

As for the commodity sector, Gold is testing the bear's commitments in a low volatility environment withhiger betas doing well. Copper and oil were both higher also. However, AUD/USD was unable to capitalise on any of this and infact fell from 0.8060 to a low of 0.7988 in London before making a claim back on the 0.80 handle to 0.8040 in NY, closing at 0.8037. The Kiwi was higher by about 60 pips in NY trade and rallied to  0.7400. 

Key events 

Analysts at Westpac offered their outlook for today's risk events as follows:

"

Following this week's soft Australian CPI print, Q4 PPI (11:30am Syd/Mel) is expected to point to muted upstream price pressures.

While US job creation in 2017 was slightly slower than previous years, the January employment report should be robust overall. Consensus is for a 180k rise in non-farm payrolls, after 184k in Dec. Annual benchmark revisions add to the prospects of a surprise. The unemployment rate is expected to be unchanged at 4.1%. The pace of wages growth will be watched closely too, with consensus 2.6%yr. This compares to a cycle high of 2.9% in December 2016, in contrast to President Trump’s SOTU claim of accelerating wages growth.

We will hear a lot from Fed officials in the week ahead. In Friday US trade it’s San Francisco’s Williams and Dallas’s Kaplan"

Key notes

• Wall Street closed mixed, big names report after the bell
• Congress has until Feb. 8 to avoid another shutdown, Ryan says progress is being made
• US: ISM survey suggests factory sector recovery remains firmly in place - Wells Fargo
• US: Productivity growth should improve in coming quarters - Wells Fargo
• Bitcoin, Ripple take another hit, Ethereum still unscathed