Forex today: start of the dollar's shorts capitulation?
Forex today saw a big move in the capitulation of short US dollar positions on a strong GDP beat for the second quarter that had been revised up to 3% setting a positive scene for the third quarter of 2017 in the US economy. At the same time, there were positive sounds from the White House with talks on tax cuts again, reigniting the "Trump-trade".
However, the US dollar index was only up 0.7% on the day and there is still a lot of work to do on the upside in the DXY before the bulls are out of the woods yet. The US dollar is still down -9.10% for the year so far.
Meanwhile, US 10yr treasury yields were in a sideways range between 2.13% and 2.15%. The Fed fund futures yields continued to price the chance of a December rate hike at around just 37%.
The euro was subsequently sold off further below the 1.19 handle, down -0.74%. USD/JPY got above the 109 handle and then the 110 handle, breezing through the 109.80 resistance that becomes a key support. GBP/USD was down a small 0.01% and at 1.2920 at the time of writing while the cross slipped below the 0.92 handle, -0.73% on the session. The commodity sector was hurt by the resurgence of the greenback and WTI was lower again while refineries in the southern US and Mexican Gulf remain offline due to Hurricane Harvey's destruction in the area. The Candian dollar took the brunt of the dollar's comeback, -0.92% while the Aussie shed -0.65%. The Kiwi was not far behind the CAD's losses, -0.80%.
Key notes from the US session
- Texas Governor Abbot: Major flooding to continue in Beaumont and other areas for a few more days
- Atlanta Fed: GDPNow model forecast for real GDP growth in Q3 is 3.4%
- US: Private sector employment increased by 237,000 jobs in August
- US Defence Secretary Mattis: US is not out of diplomatic solutions with N. Korea
Key events in Asia
Analysts at Westpac highlighted the key events in Asia today:
"Australia: Q2 private capex is seen by the market to rise 0.2%. Westpac expects a 0.8% drop, resuming the descent albeit at a slower pace as gas projects wind down. 2017/2018 Capex Est 3 is anticipated to be around $96bn – an above par upgrade of 12%, though the ‘Est-on-Est’ comparison to 16/17 deteriorates from -6.4% to -9.4% from base effects. Jul private credit is expected by Westpac and the market to increase 0.5%, matching the average for the June quarter. RBA Deputy Head of Financial Markets Infrastructures Sarah Harris participates in a panel at the Risk Australia conference. Treasurer Morrison speaks at a Bloomberg function in Sydney.
China: Aug official NBS PMIs are released. For this update, the employment component is the series to watch across both sectors."