Another tightly coiled day in FX - USD still muscling its way to the front of the pack
Not too much to go on in current markets, with mainstream US data delayed due to the government shutdown which is now in its 4th week. We did, however, get the Philly Fed manufacturing index which beat expectations and was enough to fuel some fresh USD buying against the usual suspects. EUR/USD is continuously being hammered into the mid 1.1300's, but despite the lack of downside progress, sellers persist.
Adding to the move is a strong bid in USD/CHF which has been the main USD mover in London, while on the day, NZD has lost the most ground against the greenback and is now testing the low 0.6700's. The CHF rate, in contrast, is eyeing a move on parity, but on short term metrics is looking overbought.
We also see USD/JPY picking up the baton and testing back above 109.00 again, with US stock markets showing little sign of reversing the recovery after heavy losses seen either side of the new year.
Despite calls that we are now in a bear market in equities, the carry trade is paying little attention to this as short-termism takes over once again. IN this instance, we can see a move up towards the 109.80-110.30 area, though we expect a real struggle there if not before.
EUR/USD in the meantime also has to fight off the flow based drivers as EUR/GBP sales are not letting go. So near to key support just ahead of 0.8800, it is not surprising to see NY names testing for stops, and a clear break below here will likely target 0.8700 lower down.
Whether this drives EUR/USD lower or Cable higher remains to be seen, though we suspect there will be a little of both, with notable levels at 1.1320-40 and 1.3030 respectively.