We saw some good trading conditions yesterday after the market digested the previous night’s comments from Fed Chair Jerome Powell. The dollar continued to grind higher as the stock markets had another bad day and US yields moved higher. It was not all plain sailing for the greenback though the risk correlations came back into play and the JPY gained against all of the majors and as usual Cable did it’s own thing as came off hard as news that PM Theresa May rejected the EU’s initial Brexit draft.
The commodity currencies were once again a particular focus for bearish sentiment as commodities continued to look bearish. The AUD had found some support around 0.7800 on the back of large option expiry interest, but once that rolled off it opened the path for a quick 40 pip drop. It’s now looking vulnerable to a bigger downside move as it’s sitting right on this years lows as we move into the Asian session. CAD had an even bigger move as Oil continued to back off from recent highs, assisted by higher than expected Crude Oil inventories in the US, the Loonie is now trading up around 1.2830 with the December high at 1.2920 looking like a good target in the next few trading sessions.
Looking ahead to today’s trading and we have Capex numbers due here in Australia this morning and anything weaker than the expected 1% should see the Aussie extend it’s move southwards. It’s relatively quiet for the rest of the Asian trading session but moving in the London day and we have a raft of Manufacturing PMI data due out of Europe culminating in the important UK number. Later in the day as the New York session begins the focus will once again shift to the Fed Chair as he gives his second testimony of the week, this time to the Senate Banking Committee, the US ISM manufacturing PMI data is due around the same time but expect this to have little effect as it’s superseded by the testimony.