Forex today: Trump and ECB made for a higher VIX, but stocks remains positive

forex today was all about the and the ECB until Trump took the podium during his proclamation today on steel and aluminium tariffs.

First of all, the ECB made for a volatile market where the Central Bank tweaked policy guidance and offered a marginally twist to the meeting where the euro initially found a bid but met string supply when those disappointed with the lack of clarity and who had been expecting more from this meeting got involved. The entire market's platform was shaken up sending many currencies down with the euro, including bond yields.

Then, moving over to the US session, US stocks were robust on during the proclamation today on steel and aluminium tariffs, in fact, stocks were welcoming President Trump for flagging multiple exceptions to planned tariffs and it was back to business as usual. 

Initially, VIX rallied through 17, Gold was bid to 1322 while stocks slipped and USD/JPY dropped. Then we saw a reversal on vague details and the benchmarks rallied to make a session high into the close with the S&P and Nasdaq leading the way.

• For the close, the S&P index climbed 0.45% or 12.17 points to 2738.97;
• The Nasdaq added 0.42% or 31.296 points to finish at 7427.945;
• The Dow put up  0.38% or added 93.85 points to close at 24895.21. 

In terms of yields, the benchmark US 10yr treasury yield dropped 4bp, from 2.89% to 2.85%, in line with German 10yr yields which fell 7bp to 0.62% post ECB. The Fed fund futures continued to price three more hikes by end-2018 (with March a 90% chance), and another hike in 2019. DXY was trading between a range of 89.442 - 90.232, ending 0.60% to 90.1790.

As for other currencies, EUR/USD rallied from 1.2380 to 1.2445 before losing ground all the way back to1.2300 in the NY afternoon, -0.9% for the day. GBP/USD was also holding a return ticket from 1.3900 to a close of 1.3807, -0.71% on the NY session.  USD/JPY was less volatile during the sessions ahead of the BoJ meeting but EUR/JPY eas the player today, up to 131.98 and then down to below the daily Tenkan at 130.76. 

As for the antipodeans, AUD/USD fell below 0.78. ahead of Chinese Feb CPI, weakened by market volatility and weakness in cable and the euro. It ended NY lower still to 0.7775 regardless of Trump's exemption for Australia from the steel and aluminium tariffs. Kiwi was tracking the Aussie but kept to a tighter range between 0.7240/70. USD/CAD was losing traction on the upside on the back of Trump's leniency on Mexico and Canada while NAFTA negotiations take place, USD/CAD falling back from the session highs on the leaks from officials before the event. 

Key notes from US session:

• Trump will announce his steel and aluminium decision at 3:30 pm ET, what to watch for?
• So what did we learn from the tariff proclamation today?
• EUR/USD retreats over 100-pips from post-ECB swing highs, plummets to mid-1.2300s

Key events ahead:

Analysts at Westpac highlight the key events ahead as follows: 

"There will be plenty of interest in the Bank of Japan meeting (no fixed time but usually early afternoon Sydney time – recent announcements were in the 1:30-2:30pmSyd window). No change is likely in the key policy settings: a benchmark -0.1% deposit rate, “around” 0% yield on the 10 year government bond and an annual JPY80 trillion expansion in bond holdings. The latter pace has not been reached for some time, because the BoJ simply doesn’t need to buy so many bonds to keep the 10 year yield near zero. But to cut the 80 trillion headline number would invite speculative yen buying so it is unlikely.

Inflation is not a hot topic for Chinese policymakers so markets should pay limited attention to China Feb consumer and producer prices data (12:30pm Syd).

Consensus on US Feb non-farm payrolls is for a 200k gain, the same as in Jan. Any substantial deviation from this would not change the overall narrative of a strong job market, especially if the unemployment rate edges down to 4.0% from 4.1% as expected. This would be a low since Dec 2000. But the most market-sensitive number is probably average hourly earnings. The rise to 2.9%yr in Jan stoked inflation fears and upset equity markets. The median forecast for Feb earnings is 0.2%mth, 2.8%yr."