Dollar Trades Heavily, While Prospects Of A Softer And Later Brexit Send Sterling Higher

Overview: As the North American session is about to begin, the markets await developments in the UK House of Commons where a vote is expected today on Prime Minister May's proposal to hold votes on around March 12 on the Withdrawal Bill and no deal. However, perceptions of a reduced likelihood of a no-deal exit continued to fuel sterling gains. Pakistan has reportedly shot down two Indian aircraft as the tension between these two nuclear powers intensify. The anxiety among investors may have spurred some profit taking in equities. Most markets but Japan and Korea were lower in Asia, and while the Shanghai Composite rose 0.4%, other Chinese markets were lower. Europe's Dow Jones Stoxx 600 is snapping a three-day advance and the S&P 500 is about 0.3% lower. Asia Pacific benchmark 10-year bond yields were pushed lower after the US rally yesterday, but European bond yields are a little firmer today, while the US 10-year yield is flat (~2.63%). The dollar is mostly lower, with the Antipodean currencies modest losses, the exception.  

Asia Pacific

The economic calendar is slight and the focus has been more on politics than economics as the US-North Korea meeting in Vietnam takes place. The escalation of tensions between Pakistan and India is of rising importance to regional investors. Meanwhile, there have been no fresh developments on US-Chinese trade.  

One of the few economic reports today was New Zealand's January trade balance. As is often the case, New Zealand's trade balance improved at the end of last year, with a small surplus being reported in December. It swung back into deficit in January (NZ$914 mln) and had an average monthly shortfall in 2018 of about NZF$509 mln. The deficit in January 2018 stood near NZD$662 mln. New Zealand's imports rose (which is seen as a reflection of domestic demand) while exports fell (softer external demand).  

The US dollar set the high for the year on Monday around JPY111.25. The dollar shed nearly a big figure and in early Europe tested the JPY110.35 area.  The 20-day moving average is a little lower, and the dollar has not closed below this average since the end of January. Although today's options expiry does not look impactful today, there is a $1.7 bln option at JPY110 that will be cut tomorrow. Resistance is seen now around JPY110.60-JPY110.75. The Australian dollar has been turned back from approaching $0.7200. Recall, last week before the China embargo story broke, the Aussie was pushing toward $0.7210. We thought that the move was exaggerated and looked for a bounce to sell into but thought it would not rise above $0.7200. Note that on March 1, there are two large option expirations. There is an A$1.3 bln option at $0.7150 and an A$1.6 bln at $0.7175.  

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Read more by Marc on his site Marc to Market.

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