Forex today: Dow dumps over 1,500 points, FX in risk off mode
The FX space was once again dominated by the risk of higher inflation that sent equities in free-fall and yields higher. The greenback was mixed but a good performer on the day attracting risk-off flows although the yen took the title on that front, of course.
The dollar rose 0.3-1.0% with sterling and the Norwegian krone underperforming on the sessions. US 10 year yields were and front ends higher on the hunt for liquidity in the stock market plunging.
US equities were on the backfoot extending the correction and then plummeted at the close with the Dow losing around 1,500 points, dropping 1,175 points to settle at 24,345.75, making for its worst daily point plunge in history and erasing all of 2018 gains. The VIX was well above 20
In term sof data, analysts at ANZ noted that for the US, the ISM non-manufacturing composite was at 59.9 (last: 56.0; mkt: 56.7), the highest level in a decade with employment rising to 61.6 (last: 56.3), the highest on record (since 1997) and new orders at 62.7 (last: 54.5). For European markets, the analysts explained that Markit Eurozone Services PMI rose to 58.0 (mkt: 57.6; initial: 57.6).
As for other currencies, EUR/USD ended the day lower and was testing below the 10-D SMA at 1.2408. Draghi crossed the wires and said that the ECB cannot declare victory on inflation. “While our confidence that inflation will converge toward our aim of below, but close to, 2% has strengthened, we cannot yet declare victory on this front,” he said. “Monetary policy will evolve in a fully data-dependent and time-consistent manner.” The euro was unchanged on his speech. However, with risk tanking, EUR/JPY was supportive of the euro so there was little follow through in the break below the 1.24 handle, 1.2374 was the low.
Sterling was a poor performer. The pound ended NY at 1.4020 from meeting a low of 1.3987 within a range of between 1.3987- 1.4058.
Markets are not expecting a rate hike from the BoE as soon as this meeting around and UK data was also disappointing. The UK services and composite PMI data were dropping to 53.0 and 53.5 versus consensus calls for 54.1 and 54.6 respectively. sterling is under pressure at the start of the week with UK data disappointing and concerns over UK PM May's leadership and her ability to corral the Conservative party behind her Brexit policies.
EUR/GBP rose to a two-week high of 0.8836 due to the UK service PMI miss and stayed with the bulls into the NY close 0.8858 having traded with a range of between 0.8872and 0.8852.
USD/JPY was not able to get through Friday's session high (110.49) on the ISM rally but the safe haven flows took the pair down to a low of 108.99.
With the benchmarks all down, the Dow by 1,500 points, The Nasdaq Composite by 273 points and the S&P dropping over 4.%, investors looked to the yen (not so much the CHF due to derisking) and near-term rates where liquidity is deepest. The 10yr yield fell from above 2.85% to 2.71% while pricing for Fed the tightening in 2018 was trimmed, from around 66bp to 59bp - (March is still seen as >80% chance).
As for the antipodeans, AUD/USD was falling to 0.7880 and lost about -0.6% on the day. Copper was somewhat supportive to the Aussie with LME copper +1% for an early lift above 0.7950 until supply takes the pair down to below 0.7915 for the close. NZD/USD lost only -0.3%.
Key events to come
Aussie December retail sales, trade and the RBA are key risk events in Asia.
Key notes
- US equities plunged, worst day in history for Dow
- JPY: Yen soars as Wall Street crashes
- US ISM Non-manufacturing: Index is at a 12-year high with sub-components looking incredibly strong- ING
- Draghi Speech: appearing before EU parliament in Strasbourg