Daily FX Wrap: Strong US data sets off fresh USD buying, but key levels hold firm. 115.00-50 holds USD/JPY, pre 1.0500 EUR/USD. Cable buyer ahead of 1.2350, but UK earnings slipping. Australian jobs report ahead.
After yesterday’s hawkish Yellen testimony to the Senate Banking Committee, the US data releases today served as an important backdrop against the Fed Chair’s commitment to rate increases (plural) through 2017. Both the inflation data as well as retail sales came in on the stronger side of expectations, pushing sentiment towards 3 hikes this year rather than the base-line (?) 2. Headline and core CPI rose 2.5% and 2.3% while retail sales rose 0.4% over Jan vs 0.1% expected.
This gave USD/JPY the spur for the initial test on 115.00, but with resistance from the figure up to 115.50 well established, we slipped back into the mid 114.00’s for some near term consolidation. This was in line with some moderation in US Tsy yields, with the 5yr grappling with the 200bp mark and 10yr 250bps. EUR/USD managed to extend the downside into initial support in the 1.0530-10 area, but 1.0615-20 now strong resistance on the way up, so unless we get a clean break through herel, the strong USD perspective should keep the lead spot rate under pressure.
Added pressure on GBP came from the softer average earnings component in the jobs report. The claimant count was markedly lower, but the ONS discounted this volatility to the roll out of the universal credit system. In light of currency related inflation pressures, tightening disposable income pushes any likely BoE rate hike further out on the horizon. Cable fell back towards the 1.2350-30 support zone, but stopped well short of this as thin market conditions saw buying ahead of this sparking a short squeeze back into the mid 1.2400’s. EUR/GBP resistance above 0.8500 also played its part, with direction here hard to gauge here due to EU wide political risk and that of Brexit/recent data for the UK.
Risk on sentiment keeps the commodity backed currencies on the front foot, more so AUD, but with NZD/USD also stabilising as buyers have shown their hand below 0.7150. USD/CAD is also struggling for direction with the 1.3100 pivot in play. AUD/USD still has designs on 0.7700+ with recent confidence data and the positive inflation outlook behind the outperformance seen here. AUD/NZD has tipped 1.0700, with no signs of a pull-back developing despite the sharp recent upwards trajectory. Key Australian jobs data out tonight.