The dollar has clawed back some of the considerable losses of the Fed induced sell-off from Wednesday, however, is this the start of a remarkable dollar recovery again? Major yield differentials look key to the moves for the dollar right now. A sharp move lower on Treasury yields on Wednesday drove the initial reaction on the dollar. However, as Treasury yields stood still yesterday, this was followed by subsequent sharp moves lower on the yields of Bunds, Gilts and JGBs, allowing the dollar some respite. The flash PMIs this morning could be a crucial indicator as if the Eurozone shows signs of continuing to bottom out on its economic surprises, then the differentials could continue to point towards a rally on EUR/USD. With the UK avoiding (for now) the panic of a calamitous Brexit next week, with the extension to the Article 50 deadline granted, we should also see Gilts also picking up in relief. A negative surprise in Japanese inflation overnight has not helped JGB yields and hence why Dollar/Yen is holding up today. However, looking at gold, the corrective move has so far been considered as a chance to buy, even though Wall Street equities have turned sharply higher again. As markets begin to settle this morning, the dollar is beginning to weaken again and likelihood is that yesterday’s rebound is another chance to sell still.
Wall Street closed with strong gains as the S&P 500 jumped 1.1% to 2855, although US futures are a shade lighter today by -0.1% Asian markets have been mixed overnight with the Nikkei just +0.1% and the Shanghai Composite almost dead flat. This cautious theme has rolled into European markets today with the DAX futures +0.1% higher but FTSE futures are lower by -0.4% as the negative correlation with a sterling rebound is hitting this morning. In forex, on what looks to be a cautious open the dollar is beginning to slip lower again, sterling is an outperformer after the EU-27 agreed to extend the Article 50 deadline a little further, whilst the Kiwi is also stronger. In commodities, gold and silver are both bid again, whilst oil is consolidating around the flat line.
Flash PMIs are in focus for traders today, with PMIs across the Eurozone throughout the morning culminating in the Eurozone flash Manufacturing PMI at 0900GMT which is expected to improve slightly to 49.5 (from last month’s 49.3) with Eurozone flash Services PMI to slip slightly to 52.7 (from 52.8 in February) with the Flash Eurozone Composite PMI at 52.0. The US flash PMIs are at 1345GMT and are expected to show a mixed bag with the US flash Manufacturing PMI ticking higher to 53.6 (up from 53.0 in February) but US flash Services PMI to stay at 56.0 (56.0 in February). US Existing Home Sales are at 1400GMT and are expected to improve by 2.2% to 5.10m (from 4.94m in January).
Chart of the Day – EUR/CHF
A remarkable acceleration lower on Euro/Swiss has come as the Swiss franc held ground yesterday amidst a one day correction on the euro. This has resulted in a decisive breach of key support on Euro/Swiss at 1.1305 which has completed the downside break of a triangle consolidation that has taken place over the past seven weeks. The move which has been confirmed on momentum indicators with the RSI breaking to a 10 week low and the MACD lines breaking below neutral. The downside implied target is for a test of the m