Mixed Trading Signals Over Last 24 hours; Selective USD Buying Assumed

Daily FX Wrap: Mixed trade in the USD, losing out against the JPY initially, but showing healthy gains vs EUR, GBP and CAD. BoE Forbes reignites rate hike prospect.

Mixed trading signals over the last 24 hours, with selective USD buying assumed as both EUR/USD and Cable tested lower – the latter taking out key support ahead of 1.2400. Dropping down to a low of 1.2348-50 or so, comments from BoE’s Forbes that if the UK economy stays strong, there may be a case for raising rates sooner rather than later, with Brexit uncertainty no reason enough to stay on hold.

Naturally, inflation is a concern. Cable snapped up towards 1.2400, and may break higher again, but for now, holds off this level in line with EUR/GBP holding above 0.8600. This may serve to drive EUR/USD higher again, despite the furore surrounding Marine Le Pen’s rise in the polls, but USD momentum is struggling as UST yields remain subdued.

For USD/JPY, the breach of 112.00 may have signalled a sell on recoveries, but this now largely depends on how equities perform, with Trump policy and his general presidential candour proving unnerving for investors. This is testament to the recent buying of 5-10yr Treasuries, so for now, we look to heavy going on the topside, with 112.50-114.00 now likely to be heavily congested at the very least.

Strong gains in the AUD and NZD have been rescinded with RBA rhetoric (cautious optimism) and NZ inflation expectations having sparked a short lived revival in the Asia session. NZD/USD posted new highs ahead of 0.7400 overnight, but the pull back to just below 0.7300 looks contained for now – certainly into the RBNZ Thursday. AUD/USD looks reluctant to give up the 0.7600 handle, keeping the 0.7700 figure on the horizon.

A familiar mix of Canadian data as the better than expected trade surplus was tempered by a lower than expected Jan Ivey PMI and higher building permits. Ahead of this we saw USD/CAD trading higher, spiking above 1.3200, but with oil prices edging lower, we could see the pair edging higher, but holding well inside 1.2920-1.3400 key limits into the Canadian payrolls release at the end of the week.

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