Forex today: Sterling outperforms, US stocks sink, VIX rallies, DXY and yields drop

The markets were mixed/sour grapes on Monday and Forex followed suit. US equities rolled over and  US yields dropped, taking the DXY for a visit below the 90.00 handle for a low of 89.764  from 90.345 the high. GBP was the outperformer on positive Brexit vibes.

The US 10yr treasury yield slip from 2.87% to under 2.84% and the 2yr yields were unchanged at 2.30% for the day. ahead of the FOMC this week, the Fed fund futures were little changed with three more hikes priced in by end-2018 and another hike in 2019. U.S. stocks finished deep in negative territory as Facebook’s troubles sparked a tech selloff. The VIX VIX, +20.38% gained 38%, or 6 points, to 21.82, a level that is above its long-term average of 20. DJIA fell 1.8% while the S&P 500 SPX dropped 1.9% and the Nasdaq Composite Index COMP dropped 2.5%. 

As for other currencies, EUR/USD entered the week on the bid at 1.2298 from 1.2290 Friday's close although, when attempting a break of the 1.23 handle, (key resistance 21-DMA at 1.2319), bears stepped up and reminded who was boss and EUR/JPY pilled in forcing the euro down to 1.2270 for a handover to the NY session at 1.2290.

In NY, risk was sour following a mixed Asian mood and EUR/JPY was pushed and pulled around the 21 and 10-DMAs while the greenback was beaten up and US yields skidded, allowing for a bid in the single currency. EUR/USD closed the session off at 1.2335.

After a quiet start to the week in Asia, (in a range of between 1.3927-49),  Sterling rallied hard on the Brexit transition deal speculation into Barnier's/Davis meeting where a three-week high was scored at 1.4087. The pair gave some ground back as profit-taking ensued while there is still no progress on the Irish border details. GBP closed at 1.4026.

EUR/GBP dropped from 0.8813 down to 0.8744 (five-week low) before reverting back to 0.8799 for a close of 0.8794 with the DXY falling out of bed and the euro performing to 1.2358 while cable's gains were eaten up by opportunist bulls.  PM May announced that the transition deal offers certainty to firms and citizens. Markets now await to see if this gets the seal of approval from EU heads of state at the EU Summit later this week.

USD/JPY started out the week better offered in a risk-off environment, selling off in the Tokyo fix from 106.15 down to 105.75 with the Fed around the corner and price sticking to a  105.68-106.15 range in Europe. However, in the New York session, the yen picked up demand as equities dumped. However, with sterling better bid and the euro pretty firm, the crosses took some of the wind out of the yen's sails and the dollar managed to climb from 105.78 the low to 106.15 the high for a 106.03 close. 

As for the higher beats, the commodity sector weighed with a break lower in the metals, (copper and iron-ore dive), due to trade war angst, dragging the Aussie lower with a dip below the 0.77 handle before demand drove the price higher as the DXY sells off below the 90.00 handle (yields slide). AUD/USD made a high of 0.7725 and a close of 0.7709. Kiwi was a choppy play in the US but largely ignored the commodity dump and made a high of 0.7260 making for a 0.7238 close.

Key notes from US session:

Funda and political wrap: positive vibes from Brexit progress

Key events ahead:

Analysts at Westpac noted the key events taking place ahead as follows: 

"The minutes of the RBA Board’s 6 March meeting are due at 11:30am Syd. Market interest is limited by the RBA’s firm steady hand on the cash rate near term. We will be looking for any elaboration on why the March statement changed its Australian GDP growth forecast from “growth to pick up, to average a bit above 3 per cent over the next couple of years” to a seemingly less bullish “grow faster in 2018 than it did in 2017.” GDP growth averaged just 2.3% in 2017, so this is a low bar.

The twice-monthly GDT dairy auction takes place in London trade. It has not had much impact on the kiwi recently. Futures point to a 2% fall in whole milk powder prices.

UK inflation has been running above the 2% target since Feb 2017, including several months recently at 3.0-3.1% y/y, which required Bank of England governor Carney to send a letter of explanation to Chancellor Hammond. In the Feb 2018 letter, Carney said that the inflation overshoot was “almost entirely due to the effects of higher import prices that resulted from the depreciation of sterling following the vote to leave the European Union.” As such, it is assumed to be temporary and consensus for Feb CPI is 2.8%. The data will nevertheless be watched closely ahead of Thursday’s policy decision.

The March ZEW survey of Germany investor sentiment is also due but should have little or no impact, printing somewhere around multi-year highs."