Weekly FX Wrap: stage set for Fed’s Powell, but Trump and Brexit steal limelight

The Dollar’s fortunes looked all set to be determined by House and Senate testimonies from the new Fed chair (notwithstanding external and other factors), but ultimately the latest steps in US President Trump’s mission to protect domestic interests via plans to impose tariffs on steel and aluminium imports. The DXY had been extending recovery gains and reclaimed the 90.000 handle on a mixture of rising Treasury yields, above average month demand for currency portfolio rebalancing and mainly more hawkish/upbeat Fed outlooks on monetary policy/economy, inflation and wages. Indeed, also aided by a much better than expected ISM manufacturing survey the index all but reached the 91.000 level before reversing sharply back to and just below 90.000 again as global trade war and protectionist policy concerns were stoked again. The DXY just held above its 30 DMA at 89.678, but the Usd looks increasingly weak vs the safe-haven Jpy just above fresh ytd lows around 105.25 where KO option interests lie. Major stops are reported on a break of 105.00, which is also a big barrier level, and there is little in the way of technical support before 104.20, and then 104.00 for big figure and psychological reasons. Conversely, the Gbp and Cad underperformed vs the Greenback, with Cable down towards 1.3750 vs circa 1.4000 at the start of the week on a deterioration in UK-EU Brexit relations (stances on Irish border, customs union and ECJ still poles apart) and the Loonie still suffering from NAFTA uncertainty not to mention the 25% and 10% base metal taxes due to be charged next week. Eur/Usd hit a fresh 2018 low around 1.2155 on Thursday, but has regained 1.2300+ status on the end of week broad Dollar sell-off and now eyeing March 8’s ECB policy meeting amidst source reports suggesting the easing bias may dropped from forward guidance, or at least discussed more realistically after a few hawkish GC members broached the subject last time. The single currency is also susceptible to any shocks from weekend votes in Italy and Germany, but low option volatilities indicate not much risk premium over the events (or complacency?). Quite a bit of weakness down under, with the Aud trending lower below 0.7750 vs the Usd on disappointing data ahead of the RBA and the Kiwi undermined by an unexpected NZ trade deficit, as Nzd/Usd tests bids/support in the low 0.7200 area. An interesting few days in Scandi-land, with Eur/Nok very whippy after Norway cut its inflation target to 2% from 2.5% and slumping to sub-9.5500 before rebounding swiftly again (towards 9.6800+ highs) as the Norges Bank played down the impact on policy. Meanwhile, the Sek slumped to fresh multi-year lows vs the Eur (10.1800+) on a combination of sub-consensus data and a cautious Riksbank message.