Forex today: the dollar strikes back

Forex today was tracking yields sending the US dollar higher while commodities and equities suffered as market actually rethinks the reflation trade, (lower stocks, commodities, flattening yield curve broadly speaking).

However, the long maturity rates rose on Thursday and the US 10yr treasury yield climbed from 2.86% to 2.93%, moving in on the multi-year high of 2.95% -  (2yr yields ranged sideways around 2.43%). Fed fund futures yields continued to price the next rate hike in June around 90%. Fed governor Brainard warned about rising asset prices and leverage. The DXY ranged between 89.504 - 89.952 and ended the NY session towards the higher end of the range and approaching the 90 handle once again. 

As for the other currencies, the euro was modestly lower, -0.2% on the day to a low of 1.2328,( piercing the 10, 21 & 55-DSMAs but no follow through). From there, the single currency was catching a bid to 1.2358, capped by the rising 4hr 50-SMA and cloud top, closing a choppy NY session at 1.2345.

Sterling stole the show on Thursday, starting out on the offer after yet more data misses, muddying the BoE rate hike path for investors where the pound is suffering from, making for a head fake on the recent rally to YTD highs.

UK March retail sales headline fell -1.2% m/m,  against expectations of -0.6% m/m. The miss was mostly due to very low fuel sales and poor weather that had impacted consumers. However, the main catalyst for the downside was due to a dovish Carney in a BBC interview where the Governor of the BoE affirmed that interest rates are likely to rise in the years ahead but said that in May, members would be “conscious that there are other meetings.” The pound fell sharply from 1.4195 to as low as 1.4069, closing NY at 1.4086.

USD/JPY was unable to gain traction one way or the other and continued to range in familiar territories on the 107 handle, with 107.50 capping the upside once again. However, the pair was robust considering the fall in stocks. 108 is the key objective on a break of 107.50 and eyes will monitor stocks and the DXY through 90.00 as dollar pairs flip bullish. 

As for the antipodeans, NZD/USD was under pressure on a resurgence in the dollar as inflationary fears sparked up a risk-off session in NY, sending stocks and the commodity bloc lower. The bird fell from 0.7330 to 0.7260. AUD/USD dropped back from the one-month high at 0.7813, (post Aussie jobs), to a low of 0.7718, closing at 0.7727 after the 200-D SMA capped the late Aisa, very early European morning gains. The pair fell further as commodities sold off and heavy stocks made for a soured risk environment and broke the 10-D SMA and April 18th low closing towards the 21-D SMA late in the day. 

Key notes from US session:

• Fundamental wrap: GBP/USD's rally to YTD highs a potential head fake
• BoE's Carney: Any interest rate hikes will be gradual, Brexit could delay rate rises - BBC
• Wall Street bears take the lead after three days of gains

There are no major data or event risks due in Asia on Thursday.