Forex today: markets adjust for a change in March's dot plot

Forex today was seeing a stronger dollar and higher US yields on the back of an optimistic rhetoric from Fed's gov. Powell who was answering questions in Congress during his first testimony in the NY session.

What really gave the dollar a boost was his statement saying that his personal outlook for the economy has strengthened since the December meeting arguing that tax cuts will boost investment, productivity and wages leading the market to believe that there will be a change to the dot-plot in March FOMC meeting.

However, there was no specific mention that rate hikes would be coming in at a faster pace than 'gradual'.  On the initial knee-jerk, after getting through the 40 DMA for the first time since December, the dollar ran out of steam at 90.47 before getting into seriously bullish territory while the broader tone of concerns dominates throughout the markets. In fact, the stock markets tumbled further in the last hour to close down around -300 points in the DJIA while US yields dropped back to 2.8934%.

For data:

• US Richmond Fed manufacturing index Feb: 28 (est 15; prev 14).
• US durable goods orders Jan: -3.7% (est -2.0%; prev r 2.6%).
• US Jan durable goods orders down 3.7pct m/m vs est minus 2.5pct and prev (r) up 2.6pct.
• US Jan ex-transportation durable goods down 0.3pct m/m vs est up 0.5pct and prev up 0.7pct.
• US Jan core durable goods down 0.2pct m/m vs est up 0.6pct and prev (r) minus 0.6pct.
• Richmond Fed manufacturing index for February 28 vs. 15 expected.
• US advanced goods trade balance -74.4b vs -72.3b expected.
• The Atlanta Fed GDP now estimate for first-quarter growth came in lower at 2.6% versus 3.2% last.
• Atlanta Fed GDP now estimate for 1q growth comes in at 2.6% vs 3.2% last.

As for yields, the US 10yr treasury yields leap-frogged from 2.86% to 2.92% during Powell’s testimony while the 2yr yields also climbed from 2.22% to 2.27%. The Fed fund futures yields factored in a 5bp for 2019 which brings a total of 4.5 hikes marked upon the dealing boards to the end-2019.

As for other currencies, the single currency was already in trouble on the back softer Eurozone business climate sinking to 1.48 from 1.54 (consensus 1.47) and the weaker German CPI numbers, (-0.1% vs expected -0.2 vs prior for both m/m and y/y), leading into NY at 1.2330 before sliding to 1.2310 area as traders awaited the text of Powell's prepared remarks and Q&A session. The euro fell off a cliff down to 1.2222 the low before ending NY around 1.2250. 

Sterling was again bid and looking into the 1.40 handle in the London session on M&A news with Comcast offering 22.1 billion pounds cash for Sky at GBP 12.50 per share. However, that bid was reversed on dollar strength leaving bulls deflated down at 1.3935, just above Monday's low.

The cross was beaten up during the US session after testing the upside overnight at 0.8838 where traders last week supported a bid in the euro with a rise in EUR/JPY. EUR/GBP ended the NY session down at 0.8791 -0.3% having traded between a range of  0.8845-0.8787. 

USD/JPY was up onto the 107 handle again and made a session high of 107.68 with a close around 107.40 while the Antipodeans were under pressure both dropping around 50 pips. AUD/USD stalled just shy of the cloud base and 200-D SMA, Feb 22 low where demand drove the price back for a close of 0.7245.

Key notes from US session:

Funda and political wrap: Powell sends dollar and rates higher, option interest capping majors prior advances

Key events ahead:

Analysts at Westpac offerd their preview of the key events ahead:

"Australia’s calendar is limited to Jan private sector credit data, not a market mover.

China releases its Feb surveys of manufacturing and service sector sentiment, expected to be respectively modestly expansionary around 51 and quite strong, around 55. But caution should be used in trying to interpret monthly changes, given that lunar new year holidays fell entirely in February this year.

India’s GDP is expected to have risen 7.0%yr in Q4, up from 6.3% in Q3.

The advance reading on Eurozone Feb CPI will be closely watched. Consensus on the overall inflation rate is 1.2%yr and 1.0%yr on the core rate. On Monday, ECB president Draghi said that “Measures of underlying inflation – which we monitor for their information content concerning inflation dynamics – have remained subdued.”

The US data calendar features revised Q4 GDP (f/c 2.5%) and the Feb Chicago survey of regional business sentiment, which tends to run much hotter than the national average."