Forex today: dollar higher to fresh 2018 high on weaker EMs and commodity-FX

• Forex today was giving the dollar a boost and reminding traders who's the boss.
• The DXY climbed -0.43% to 95.6210 from the depths of the 95 handle and made a fresh 2018 high close - the pull back to below 95.20 this week caught out the less committed bulls. 

The greenback was bid on a number of counts but not least, Fed's Evans who was more hawkish than usual when speaking on Thursday in the US session. Evans sees one or two more rate hikes in 2018 as reasonable. The Chicago Fed chief said that fiscal stimulus was reducing unemployment and argued that higher rates may be needed to restrict economic growth and to combat the effects of recent fiscal stimulus on the U.S. economy. 

As Bloomberg wrote, "Evans, who has long been considered one of the most dovish officials at the U.S. central bank, said “it would not surprise me at all if we make a judgment to move to a somewhat restrictive setting,” citing roughly half a percentage point above his 2.75 percent estimate of neutral."

Elsewhere, US Treasury yields fell on a soft PPI number that was 0.0% m-o-m in July, but weaker than expected - Consensus was 0.2%. The Atlanta Fed trimmed the U.S. Q3 GDP growth forecast to 4.3 pct - all of which should not have been dollar friendly. However, emerging market currencies were suffering, lead by the Turkish Lira (no rate hike yet). The US/Turkish relations are also hitting record lows over the detained US pastor on espionage charges. at the same time, the Russian by the US is kicking up a risk-off profile for the EMs which is propelling the dollar within its northerly trajectory; (Tighter offshore USD liquidity due to the Fed's balance sheet reduction weighs on the EMs and that is something that is coming back front and centre of investors minds).

The US 10yr treasury yields dropped from 2.96% to 2.93% and the 2yr yields slipped down from 2.67% to 2.65% while the Fed fund futures yields slid a touch, now pricing around 40bp of tightening by close of play this year. 

Currency action

As for the euro, it was dragged by EUR/CHF on risk-off play and fell from 1.1615 to 1.1530. The single currency is weighed by a lack of positive noise from the bloc and indeed, the Italian doom and gloom are coming back to the fore. also, the ECB is seeing intensifying risk from protectionism and the tariffs spat which is weighing on investor sentiment. However, overall, the policy advantage, both fiscal and monetary for the USD keeps a lid on EUR/USD and 1.1500 is at serious risk of a material breach.

Sterling was threatening a break of the line in the sand which is where the pound finally stabilised back in August 2017 - that line is at 1.2773, below the lows of 1.2817. The pair ended NY at 1.2823 within the NY range of 1.2907-1.2817 while lingering Brexit uncertainty also weighs on the pound.  EUR/GBP was ducking back from the 2018 high at 0.9030, ending NY 0.8988 -0.26% within Thursday's range of between 0.9030-0.8985. USD/JPY was oscillating around  111 the figure, finding support at the 55-DMA  at 110.72 but feeble correction comes on the back of yen shorts covering the EM and commodity FX yen-funded longs, capping attempts higher on the 111 handle  - the pair closed NY at 111.07 while US yields show even less conviction ahead of US CPI on Friday. As for the commodity complex, the CRB was drifting to a cliff edge of the neckline H&S and copped stayed heavy, weighing on the Aussie that had found some short-term relief in the AUD/ZND flows, RBNZ induced, where bargain hunters stepped in on the cheap and took AUD/USD back to a more reasonable 0.7365, closing NY at 0.7372 - the bearish engulfing candle leaves the pair vulnerable to  further downside in the session ahead where eyes will be on the RBA within an environment where markets are already switching out of the antipodeans after an uber-dovish RBNZ yesterday. The kiwi continued to underperform overnight, dropping from 0.6680 to 0.6615 and was down 2% over the day to the worst levels since March 2016.

Key notes from US session:

• US: Headline CPI to hold steady at 2.9% y/y in July - TD Securities
• Atlanta Fed: GDPNow estimate for real GDP growth in Q3 ticks down to 4.3%
• Fed's Evans: One or two more rate increases 'reasonable' by end of year.
• Telecom lifts Nasdaq, Dow and S&P close with modest losses

Key events ahead:

Analysts at Westpac offered their outlook for today's key events:

• The RBA releases its quarterly Statement on Monetary Policy at 11:30am Syd/9:30am Sing/HK. This lengthy document includes updated forecasts for GDP, headline and underlying inflation and the unemployment rate. After Tuesday’s Board meeting, Governor Lowe said the bank’s “forecast for the Australian economy remains unchanged. GDP growth is expected to average a bit above 3 per cent in 2018 and 2019.” So any forecast changes should be modest, but there will be plenty to note in the commentary on e.g. wages, the housing market, funding costs and trade tensions.
• The week’s US data highlight (by a long way) is today’s July CPI, even though it is not the Fed’s preferred inflation measure. The median forecast is for a 0.2%mth gain in both overall consumer prices and prices ex-food & energy, producing annual rates of 2.9% and 2.3% respectively (both unchanged from June).