Forex today: risk-on, markets react uniformly, yen and dollar down, rates and stocks up

Forex today was once again at the mercy of the performances in US stocks on the back of geopolitical developments. Risk on returned after President Xi managed to respond to the US in terms of tariffs on Chinese imports by encouraging negotiations to avoid an outright trade war.

President Xi was stating that China should “push for free trade” and that “China will not threaten others ...", and, "... will not undermine existing global order,” and adding that China should, “sharply widen access to market”. Trump responded in a tweet stating that he was “very thankful for President Xi of China’s kind words on tariffs and automobile barriers” and his “enlightenment on intellectual property and technology transfers. “We will make great progress together!” he said.

Elsewhere, eyes were on the Zuckerberg testimony before Congress, the White House and FBI investigations, Syria/Russian headlines and the ECB once again.  Russia has told the U.N. Security Council that they do not agree with U.S. draft resolution to create new Syria chemical weapons inquiry - diplomats. Reuters came with the headline that the US Council will vote on a draft resolution to set up an inquiry into chemical weapons attacks in Syria.

Despite higher stocks and commodities, the US 10yr treasury yield ranged sideways between 2.78% and 2.81% and the upside in the 2yr yields only rose from 2.27% and 2.30%. The Fed fund futures yields, however, firmed to price the possibility of the next rate hike in June as a little above 80% as the reflation trade reemerged.

In terms of other other currencies, the single unit initially got off from 1.2330 to a 1.2378 high on the back of the ECB's and Bank of Austria's governor Nowotny informing Reuters that he would have no problem if the ECB lifted the deposit rate from -0.4% to -0.2% to start the process of rate hikes. However, this seemed to have rattled some feathers of the ECB's board as an ECB spokesperson later emailed a statement saying that, “Governor Nowotny’s views are his own. They do not represent the view of the Governing Council.” EUR/USD dropped to a session low of 1.2324.

GBP/USD was ending the day higher by 0.32%, extending the Rouble's meltdown rally at the start of the week over the Russian sanctions that the US has imposed in light of the speculation that he  Kremlin was behind the attack in the quiet cathedral city of Salisbury, including its identification of the chemical used  a strain of the nerve agent Novichok  and its belief that Russia has produced this substance in the last decade. The pound was trading within a 1.4146/88 range, better bid on the back of BoE sentiment. Reuters gave an interview to BoE's McCafferty who advocated for a rate hike to curb inflation where markets are already factoring in an 80% chance of a hike as soon as May, (McCafferty and Saunders voted for hike last month).

EUR/GBP was down to test 0.8695 key support level in Europen trade here demand picked the cross up at the cheapest level since 22nd March and rallied in NY to 0.8726 within a session range of between 0.8728-0.8705.

USD/JPY was piercing the 50- D SMA and the cloud base around 107.15/19 while rising from 106.80 to 107.40, (NY high), before consolidating a 0.4% gain on the day at 107.20 on the safe haven exit and with risk returning in full force on Tuesday after China Presiden Xi's speech reduce trade tensions. Stocks were higher as a result and the PPI above forecast results underpinned the upside and positive tone on Wall Street.  

As for the higher betas, the vibe was strongly positive with a surge in commodities and the best CRB close in more than two months. Copper was at the highest level in a month and the Aussie managed to extend yesterday afternoon’s rise from 0.7720 to 0.7768 making a three-week high, helped along by a yen gain in AUD/JPY. The kiwi was moving to a six-week high from 0.7325 to 0.7376. 

Key notes from US session:

Fundamental and political wrap: risk on, for now, as geopolitical angst calms post Xi/Trump

Wall Street bulls take the lead as China is pushing free trade

Key events ahead:

Analysts at Westpac explained the forthcoming key events as follows:

"At 10:30am Syd/8:30am Sing/HK we see Australia April consumer sentiment from Westpac and the Melbourne Institute. The March reading was little changed at 103.0, slightly on the firm side of historical averages but notably cooler than business confidence. The survey was conducted 2nd to 7th April."

"RBA governor Lowe speaks in Perth on "Regional Variation in a National Economy", at the Australia-Israel Chamber of Commerce (WA) from 3:05pm Syd/1:05pm WA/Sing/HK."

"China releases Mar data on consumer and producer prices. Consensus is 2.6%yr on CPI and 3.3% on PPI. There is limited market tension around the release, with inflation not a pressing problem in China recently."